Which one of these situations creates negative amortization?

Question

Quizplus · Accepted Answer

Negative amortization occurs when the borrower's mortgage payment does not cover the interest due and the unpaid interest is added to the principal balance of the mortgage, leading to a higher outstanding balance. Option B describes this scenario, where the borrower pays less than the monthly interest on the mortgage, leading to negative amortization. The other options mentioned do not lead to negative amortization.

Which One of These Situations Creates Negative Amortization