Finance
A Connecticut buyer has a mortgage with a 'negative amortization' feature. This means:
AThe loan balance decreases faster than a standard mortgage
BThe minimum payment does not cover the interest due, and the unpaid interest is added to the loan balance✓ Correct
CThe mortgage requires a balloon payment at the end
DThe interest rate decreases over time
Explanation
Negative amortization occurs when minimum payments don't cover the interest charges. The unpaid interest is added to the principal balance, causing the loan balance to increase over time rather than decrease.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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