Finance
What is 'negative amortization' in a mortgage and why is it risky for Illinois borrowers?
AWhen monthly payments exceed the interest; the loan balance decreases faster than scheduled
BWhen monthly payments are less than the interest due; the unpaid interest is added to the principal, increasing the loan balance✓ Correct
CA penalty applied when the borrower makes extra payments ahead of schedule
DWhen the property value decreases; the mortgage goes underwater
Explanation
Negative amortization occurs when a borrower's monthly payment is less than the interest that accrued, causing the difference to be added to the loan balance. Over time, the borrower owes more than they originally borrowed.
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