Finance
Which of the following describes 'negative amortization'?
AA mortgage where the interest rate can never increase
BA situation where scheduled loan payments are less than the interest charge, causing the loan balance to increase over time✓ Correct
CA reduction in the loan balance faster than scheduled
DA mortgage that is completely paid off early
Explanation
Negative amortization occurs when the scheduled payment amount is less than the interest accruing on the loan, causing unpaid interest to be added to the principal balance. This causes the loan balance to grow over time rather than shrink. Negative amortization was common in certain ARM products before the 2008 housing crisis.
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