### What does negative amortization in a mortgage mean? - [x] The loan balance increases over time instead of decreasing - [ ] The loan balance remains the same over time - [ ] The interest rate decreases over time - [ ] The principal payments decrease over time > **Explanation:** Negative amortization occurs when the monthly mortgage payments are insufficient to cover the loan's interest and the principal amount. As a result, the unpaid interest is added to the original loan balance, causing an increase over time instead of a decrease. ### Which type of loan is most susceptible to negative amortization? - [ ] Fixed-rate loans - [x] Adjustable-rate loans - [ ] Interest-only loans - [ ] Balloon loans > **Explanation:** Adjustable-rate loans are more susceptible to negative amortization because the interest rate fluctuates at scheduled intervals. If the interest rate increases significantly and the monthly payments are not adjusted accordingly, it can lead to negative amortization. ### How can borrowers reduce the chances of negative amortization on their home loan? - [ ] Requesting a fixed interest rate loan - [x] Requesting an adjustable interest rate loan - [ ] Requesting a balloon payment loan - [ ] Requesting an interest-only loan > **Explanation:** Borrowers can reduce the chances of negative amortization on their next home loan by specifically requesting an adjustable interest rate loan and communicating this preference to their mortgage broker during the preliminary application stages. ### Why are fixed interest rate loans less likely to experience negative amortization? - [x] Because the interest rate remains constant for the life of the loan - [ ] Because the interest rate fluctuates regularly - [ ] Because the principal payment increases over time - [ ] Because the payment terms are more flexible > **Explanation:** Fixed interest rate loans are unlikely to be impacted by negative amortization because the interest rate remains constant for the life of the loan. This stability ensures that the monthly payments adequately cover both the interest and principal amounts. ### What should a borrower do if they are at risk of negative amortization with an adjustable-rate mortgage? - [x] Consult with their lender about adjusting the payment terms - [ ] Continue making the same payments - [ ] Switch to interest-only payments - [ ] Request a balloon payment option > **Explanation:** If a borrower is at risk of negative amortization with an adjustable-rate mortgage, they should consult with their lender about adjusting the payment terms to ensure that payments adequately cover the interest and principal amounts to avoid an increasing loan balance. ### Which of the following is NOT a characteristic of negative amortization? - [ ] Loan balance increases over time - [ ] Monthly payments remain insufficient to cover interest - [x] Principal balance decreases steadily - [ ] Interest is added to the principal amount > **Explanation:** A characteristic of negative amortization is that the loan balance actually increases over time due to insufficient monthly payments to cover the interest. Therefore, the statement that the principal balance decreases steadily is not a characteristic of negative amortization.