West Virginia Mortgage Law Practice Test

A mortgage loan may feature which of the following?

1. A payment schedule that fully amortizes by the end of the term

2. A payment schedule without a fixed term

3. Negative amortization

4. Zero payments until the end of the term

The correct answer is: A payment schedule that fully amortizes by the end of the term

The correct answer is that a mortgage loan may feature a payment schedule that fully amortizes by the end of the term. This characteristic is fundamental to many traditional mortgage products, where monthly payments are structured to gradually reduce the principal balance over the life of the loan, ensuring that the loan is fully paid off by the end of its term. This amortization process provides borrowers with certainty regarding their payment amounts and helps them build equity in their property over time. Other options present scenarios that are less common or generally not preferable in mortgage lending. For instance, a payment schedule without a fixed term would create uncertainty for borrowers, making it difficult for them to manage their financial planning. Negative amortization implies that the borrower is not paying enough to cover the interest, leading to an increasing loan balance, which can be risky. Lastly, zero payments until the end of the term is usually seen in specific types of deferred loans and can be burdensome for borrowers when the loan comes due, as they face a large lump-sum payment.