Finance
What is 'negative amortization' in a mortgage loan?
AA. The loan balance decreasing faster than the scheduled payment
BB. The loan balance increasing because payments do not cover all the interest due✓ Correct
CC. A penalty for paying off a loan early
DD. A temporary reduction in mortgage payments due to hardship
Explanation
Negative amortization occurs when loan payments are insufficient to cover all the interest accruing on the loan. The unpaid interest is added to the principal balance, causing the balance to grow over time despite regular payments.
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