Finance
Negative amortization on a Wyoming mortgage loan occurs when:
AThe loan is paid off faster than scheduled
BMonthly payments are less than the interest owed, causing the loan balance to increase✓ Correct
CThe interest rate decreases below zero
DThe property value drops below the loan balance
Explanation
Negative amortization occurs when the monthly payment is insufficient to cover the interest due. The unpaid interest is added to the principal balance, causing the loan balance to grow over time.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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