Finance
What is 'negative amortization' in a mortgage loan?
AA loan where payments exceed the interest owed, reducing principal faster than scheduled
BA loan where the minimum payment is less than the interest owed, causing the loan balance to increase✓ Correct
CA loan with a decreasing interest rate over time
DA penalty charged when a loan is paid off early
Explanation
Negative amortization occurs when minimum payments don't cover all accrued interest, so unpaid interest is added to the principal balance, causing the loan to grow over time. This can occur with certain ARMs and payment-option loans.
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