Michigan Real Estate Exam Practice Question
Negative amortization is:
Correct Answer: D
Rationale: Negative amortization occurs when the monthly payment on a loan is insufficient to cover the interest due, causing the outstanding balance to increase over time. This is accurately described in option D.
Option A refers to the adjustment of interest rates, which is unrelated to amortization. Option B describes an interest-only mortgage, where payments cover only interest, but does not inherently lead to negative amortization unless the payments are insufficient. Option C pertains to property insurance, which is unrelated to mortgage structures or amortization concepts.
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