Finance
What is 'negative amortization' in a mortgage?
AA mortgage with a declining interest rate over time
BA situation where the monthly payment is less than the interest due, causing the unpaid interest to be added to the loan balance — the balance grows rather than decreasing✓ Correct
CThe process of writing off mortgage interest on federal taxes
DA penalty for paying the mortgage balance down too quickly
Explanation
Negative amortization occurs when monthly payments are insufficient to cover all accrued interest. The unpaid interest is added to the loan principal, causing the balance to increase over time. This can occur with certain adjustable-rate mortgages (payment option ARMs). It increases the borrower's debt and risk.
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