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:

Process

Involves a series of actions or steps taken in order to achieve a particular end, often relating to systematic operations or procedures.

Transactional Event

An exchange or interaction between parties that usually involves a change in status or condition, often used in reference to business or economic activities.

Restricted

Limited or confined within certain parameters, boundaries, or conditions, often imposed by external factors or regulations.

Coercive Power

The ability to compel or force someone to act in a certain way through threats, punishments, or control measures.