New Jersey Real Estate License 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, leading to an increase in the overall mortgage debt. This situation can arise in adjustable-rate mortgages or interest-only loans where payments may not reduce the principal.
Option A describes the adjustment of interest rates but does not relate to amortization. Option B inaccurately implies that all interest-only loans result in negative amortization, which is not always the case. Option C defines property insurance, unrelated to mortgage payments or amortization concepts. Thus, only option D accurately reflects the definition of negative amortization.
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