Final answer:
High-cost mortgages, regulated to prevent predatory lending practices, typically do not allow features like prepayment penalties, negative amortization, or balloon payments. The correct answer to the question is D) None of the above.
Step-by-step explanation:
Typically, high-cost mortgages, also known as Section 32 mortgages, are subject to certain regulations that prohibit or limit the features which can be considered predatory. These features include prepayment penalties, negative amortization, and balloon payments, which are not typically allowed. Specifically:
- Prepayment penalty: This is a fee charged to borrowers for paying off a loan before the end of its term. High-cost mortgages often restrict or forbid prepayment penalties as a consumer protection measure.
- Negative amortization: This occurs when the loan principal increases because the monthly payments do not cover the full amount of interest due. This feature is generally not permitted in high-cost mortgages to protect borrowers from escalating debt.
- Balloon payment: This is a large, lump-sum payment due at the end of a loan's term. Regulations typically prevent high-cost mortgages from including balloon payments to avoid placing a sudden, significant financial burden on the borrower.
Therefore, the correct answer to the question is D) None of the above.