Finance
What is 'negative amortization' and when does it occur in Idaho home loans?
APaying more than required to reduce principal faster
BWhen loan payments are insufficient to cover the interest due, causing the unpaid interest to be added to the loan balance — making the balance grow over time✓ Correct
CA gradual reduction in the interest rate over the loan term
DPaying off a loan before its scheduled maturity
Explanation
Negative amortization occurs when the minimum required payment doesn't cover the accruing interest, causing the deferred interest to be added to the principal balance. This can occur with payment option ARMs or graduated payment mortgages. Idaho borrowers in negative amortization loans can end up owing more than they originally borrowed — a serious financial risk.
Related Idaho Finance Questions
- A participation mortgage in commercial lending is one where:
- An FHA loan in Idaho requires a minimum down payment of:
- When a lender requires a borrower to maintain a certain amount in an escrow account for taxes and insurance, the monthly escrow payment is calculated by:
- What does 'PITI' stand for in mortgage payment calculations?
- When a buyer assumes an existing mortgage, they:
- A VA loan is available to eligible borrowers and is guaranteed by:
- In Idaho, what is an 'open-end mortgage'?
- What is 'prepayment penalty' in a mortgage and is it common in Idaho today?
Practice More Idaho Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Idaho Quiz →