Mortgage Loan Originator (MLO) Licensing Practice Test 2025 – Your All-in-One Guide to Exam Success!

The prohibition of negative amortization as a feature of a qualified mortgage is grounded in the purpose of ensuring that borrowers can afford their loans without facing an increasing debt burden. Negative amortization occurs when the monthly payments do not cover the interest due on the loan, which can cause the unpaid interest to be added to the loan balance. This can lead to a situation where the borrower owes more than they initially borrowed, making it more difficult to repay the loan and increasing the risk of default.

In contrast, adjustable interest rates, low-income options, and fixed-rate options can all be features of qualified mortgages, provided they meet certain criteria. Adjustable-rate mortgages may still be deemed qualified if they adhere to specific guidelines meant to protect borrowers, such as caps on interest rate increases. Low-income options and fixed-rate options also align with the goals of qualified mortgages to ensure affordability and prevent risky lending practices. Therefore, the prohibition of negative amortization is a key measure included in the qualified mortgage standards to maintain responsible lending and borrower protection.