Kansas Real Estate Salesperson Practice Exam

Making only minimum payments on an adjustable-rate mortgage often leads to an increase in the loan principal. This scenario typically occurs when the minimum payment is less than the interest that accrues on the loan during the billing cycle. When borrowers only pay the minimum, the unpaid interest gets added to the remaining balance, which means the overall debt increases over time.

This situation, known as "negative amortization," can create financial strain because the borrower may end up owing significantly more than the original loan amount, especially during periods of rising interest rates. Borrowers should be aware of their payment options and the potential long-term effects of making only minimum payments, particularly with variable-interest loans, as this strategy can lead to substantial debt growth.