Answer:
Step-by-step explanation:
Payment Shock is when there is a risk that future periodic payments of a loan increases and thus may put the borrower at risk of defaulting on the loan.
It can occur for many reasons, such as:
- change of fixed interest rate
- expiration of temporary initial interest rate
- increase is ARM's indexed interest rate
People are usually attracted to these mortgages because low initial monthly payments. But sometimes, these backfire on them because of reasons stated above and put them at risk when monthly payments rise above being comfortable.
