Asked by Krystina Marschall on May 05, 2024
Verified
In a(n) _____ loan, early payments are lower than the monthly interest charge.
A) zero-down loan
B) adjustable-rate mortgage
C) negative amortization
D) Alt-A loan
Negative Amortization
A situation in which the principal balance on a loan increases because the payments made do not cover the interest due.
Early Payments
Early payments are payments made before their due date, which can help reduce the amount of interest owed over time on loans.
Monthly Interest Charge
The amount charged by a lender to a borrower for the use of assets on a monthly basis, calculated as a percentage of the principal.
- Recognize different borrowing methods and their consequences.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
C
Explanation :
A negative amortization loan allows for early payments that are lower than the monthly interest charge. This can be beneficial for borrowers who may not have the means to make full payments in the beginning of the loan. However, it can lead to higher payments later on and potentially negative equity in the property.
Learning Objectives
- Recognize different borrowing methods and their consequences.