A borrower's ARM has a negative amortization cap of 115% of the original loan amount. If the original loan was $400,000, what is the maximum loan balance before the loan recasts?
Correct Answer
C) $460,000
A negative amortization cap of 115% means the loan balance can grow to 115% of the original loan amount before triggering a recast. 115% of $400,000 = $460,000. Once this threshold is reached, the loan typically recasts to a fully amortizing payment schedule.
Why This Is the Correct Answer
A negative amortization cap of 115% means the loan balance can grow to 115% of the original loan amount before triggering a recast. 115% of $400,000 = $460,000. Once this threshold is reached, the loan typically recasts to a fully amortizing payment schedule.
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