If an ARM Index Increased 15%, the Negative Amortization on a Loan

question 21

Multiple Choice

If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by:

• A) Using the same payment as last year and deducting 5% from the principal balance
• B) Increasing the payment by 5%
• C) Totaling the difference between the payment as if no cap existed and the 5% capped payment
• D) Compounding the difference between the payment as if no cap existed and the 5% capped payments

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Definitions:

Belief

A cognitive acceptance that something is true or exists, often without needing empirical evidence.

Selective Screening

The process of filtering information to focus on the most relevant or significant details, often to reduce information overload.

Perceptual Process

The sequence of psychological steps that a person uses to organize and interpret information from the external world into a coherent picture.

Internal Factor

A factor that originates within an organization, individual, or system, affecting its function or behavior.