Finance
What is 'negative amortization' on a mortgage loan?
AWhen the borrower makes extra principal payments
BWhen monthly payments are insufficient to cover the interest due, causing the loan balance to increase✓ Correct
CWhen the interest rate decreases below zero
DWhen the property value falls below the loan amount
Explanation
Negative amortization occurs when the scheduled payment is less than the interest accrued, causing the unpaid interest to be added to the loan balance. Over time, the borrower ends up owing more than the original loan amount.
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