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:

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