Definitions for

**"Negative amortization"****Related Terms:**Negative, Deferred interest, Amortization schedule, Amoritization, Remaining balance, Capitalization, Balloon loan, Capitalizing interest, Interest-only payment, Balloon loans, Remaining term, Capitalization of interest, Principal and interest, Amortized loan, Biweekly payment mortgage, Balloon mortgage, Additional principal payment, Balloon, Principal balance, P&i, Amortization table, Blended payments, Biweekly loan, P & i, Graduated payment mortgages, Biweekly mortgage, Loan principal, Amortization, Capitalized interest, Amortized mortgage, Repayment schedule, Amortization tables, Original principal balance, Standard payment calculation, Graduated-payment mortgage, Fully amortized arm, Balloon payment, Balloon payment mortgage, Balloon payments, Graduated payment mortgage, Simple interest loan, Growing equity mortgage, Fixed installment, Amortize, Direct reduction mortgage, Interest only loan, Level payment mortgage, Gpm , Loan balance, Interest-only loan

When the periodic payments on a loan are not sufficient to pay the interest which has accumulated during the previous period resulting in an increase rather than a decrease in the amount owing on the mortgage.

When your minimum payment toward a debt is not enough to cover the interest charges. When this occurs, your debt balance continues to increase despite your payments.

Financing arrangement in which monthly payments may be less than the true amortized amounts and the loan balance may increase, rather than decreases, over the term of the loan. The interest shortage can be added back to unpaid principal or can be added back to the loan and payable at maturity.

A gradual increase in the mortgage debt that occurs when the monthly payment is too small to cover the principal and interest due. The amount of the shortfall is added to the remaining balance. This situation occurs on some mortgage loans that have fixed monthly payments, but variable interest rates.

A loan in which the interest rate and payment may change independently from each other creating the potential for the principal balance of the loan to increase rather than decrease over the term of the loan. Several variations exist and all can create problems when attempting to put a second mortgage behind a neg-am loan.

A condition where the loan balance goes up, rather than down, as payments are made. If a payment is not large enough to cover the interest due the difference is added to the principal. Negative amortization can occur in certain types of adjustable rate mortgages.

An increase in the outstanding balance on a loan because payments made by the borrower are less than the periodic interest charges.

When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest.

Negative amortization occurs with some adjustable-rate mortgage (ARM) loans when the payment amount is insufficient to cover the interest due on the loan. Any interest not covered by payment is deferred and added to the principal balance.

A method of loan amortization in which the loan payments are less than the amount needed to pay the loans interest. The unpaid interest is added to the outstanding principal balance of the loan, thus increasing the balance over time. Can occur under indexed loans for which the applicable interest rate may be changed (raised) without affecting the monthly payments. Can be intentionally structured to give lower payments at the beginning of a loan.

A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.

A portion of interest that is not covered by your monthly payments and is added to the principal balance and increases the amount your owe the lender.

Negative amortization is when the monthly payment does not cover the interest owed and the unpaid interest is added to the unpaid balance of the loan. In some cases a borrower could owe more than the original amount borrowed. This is also called deferred interest.

Occurs when monthly payments fail to cover the interest cost. The unpaid interest is added to the unpaid balance, where the principal balance increases rather than decreases.

A loan payment schedule that causes the principal balance of a loan to increase instead of decrease.

Mortgage loan in which the principal and interest payments do not fully cover the interest due each month. The interest not covered is added to the principal balance, making that balance increase instead of decrease.

Financial instrument that allows borrowers to finance more than they might otherwise be able to borrow. Negative amortization follows the same procedure as regular amortization with one distinction, that of deferring interest due by adding the deferred interest to the outstanding principal balance of the loan for the first several years.

With a normal amortized loan, you gradually pay down your principal (the amount you borrowed). A few loans let you pay a smaller amount, which does not cover the entire principal and interest. In those cases, the shortfall is added to the remaining balance, creating negative amortization. It's to be avoided, because you owe more than you did the month before.

(Also called "Deferred Interest"). A slow increase in mortgage debt that occurs when the monthly payment is not big enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create negative amortization

Occurs when your monthly payments is less than the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan.

when monthly payments aren't enough to cover interest costs, they are added to the principal balance. This is most likely to occur with ARM's that have payment caps.

An increasing debt which occurs when the borrower's monthly payments do not cover the interest due; as a result, the interest due is added to the loan balance.

this happens when the borrowers monthly payment is insufficient to cover the principal and interest due on the loan. The effect is that the loan gets larger because the unpaid interest is continually being added on to the loan. This type of situation only occurs in ARM's where there has been a significant increase in the interest rates.

This is when the monthly payments cover only part of the interest then due. The amount of the shortfall is added to the unpaid principal balance to create additional principle.

The increasing of a debt. In the case of a mortgage, the principal is increased.

Occurs when interest accrued during a payment period is greater that the scheduled payment and the excess amount is added to the outstanding loan balance (e.g., if the interest rate on ARM exceeds the interest rate cap, then the borrower's payment will be sufficient to cover the interest accrued during the billing period - the unpaid interest is then added to the outstanding loan balance).

The principal balance of your loan increases rather than decreases. This happens when the money you pay on the loan doesn't cover the cost of the interest due on the loan.

A condition in which a monthly loan payment is less than the amount of the interest. As a result, the amount owing on the mortgage increases over time.

An increase in debt that occurs when monthly payments do not cover the principal and the interest.

When monthly payments do not cover all of the interest cost. Interest cost not covered by the payment is added to the unpaid principal balance. What this means to you is that even after making many payments, you could owe more than you did at the beginning of the loan. This occurs when an ARM has a payment cap that results if monthly payments not enough to cover the interest due. See also Amortization

an interest payment shortfall, which is added back onto the principle balance. Also see Deferred Interest Loan, Flexible Payment Loan and Option ARM.

A decrease in amortization. This occurs when monthly payments are too small to cover either the principal or interest reductions.

An increase in the outstanding balance of a mortgage resulting from the failure of periodic debt service payments to cove required interest charges on the loan.

When the interest payments in the early years of certain types of mortgage loans, such as ARMs and GPMs, are insufficient to cover the scheduled interest payments on the outstanding loan, the difference between the scheduled interest amount and the amount of interest paid is added to the outstanding loan amount, which increases the mortgage loan balance. This process is called negative amortization.

This takes place when monthly payments are not larger enough to cover all the interest on the loan. Therefore, the unpaid interest is added to the unpaid principal balance and the loan balance increases.

Most likely to occur with ARMs when monthly payments are not sufficient to cover interest costs. Additional interest is added to principal balance and the borrower may end up owing more than at the initiation of the loan.

A situation where the principal of a loan raises due to payments being less than interest owed.

Increase in principal balance that occurs when monthly payments do not cover total interest costs; the unpaid interest costs is then added to the unpaid principal balance.

A loan payment schedule that produces additions to the principal, not a reduction. The unpaid interest is added to the mortgage principal in a loan. This causes the principal balance to increase rather than decrease because the mortgage payments do not cover the full amount of interest due.

Occurs when the monthly payments are not large enough to pay all of the unpaid balance of the loan, therefore increasing the loan balance and going in a "negative" direction. In this particular scenario, a borrower can literally end up owing more money than they originally borrowed. The reason that this occurs is because on a negatively amortized loan, the borrower is given several different payment options. OPTION 1: To pay what is known as the fully indexed payment. This is the margin plus index on the adjustable. This payment, which is typically the highest of the options, will prevent you from going negative. OPTION 2: An interest only payment. You would not be going negative by making this payment either, but you would not be decreasing the principal balance that you owe on your loan. This is because you are paying only the interest portion, and no additional principal to your loan. OPTION 3: (And the one that most often gets people into trouble...) The negatively amortized payment. This is a payment that not only does not cover the principal, but doesn't cover all of the interest owed on the monthly payment, therefore accruing negative equity as a result.

an interest payment shortfall, which is added back into the principal of the loan.

When monthly payments are not large enough to cover the interest due each month, the unpaid interest is added to the balance of the loan.

Occurs when a borrower's monthly payments are not large enough to pay all the interest due on the loan. This shortfall is added to the remaining loan balance to create "negative" amortization.

is associated only with ARMs and can occur when a scheduled mortgage payment is too small to pay interest charges on a loan. In such cases, the cash shortfall is added to your mortgage principal, thus making your outstanding mortgage balance grow.

A periodic increase in the principle balance due on a mortgage loan, usually resulting from unpaid interest added to the principal.

Occurs when loan payments are not enough to cover the amount of interest due for that payment period. The unpaid interest is calculated and added to the total loan amount, increasing your outstanding balance.

Some loans allow you to make monthly payments that are too small to repay interest and principal. In other words, you are not paying a large enough amount to cover the fully amortized principal and interest. Loans that allow negative amortization usually have to be paid off in one lump sum at the end of the term. See also Amortization, Amortization Schedule, Self Amortization and Balloon Payment.

An actual increase on the principle amount of a real estate loan because of the addition of matured by unpaid interest to the loan balance. Usually the result of monthly payments witch are temporarily set at a lower than needed level.

An increase in a mortgage's outstanding balance, caused when the monthly payments do not cover the monthly interest due.

Monthly mortgage payments that are not large enough to pay off accrued interest, which actually increases the mortgage's principal.

A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.

An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.

The gradual increase in the balance of a loan, caused by adding unpaid interest to the loan balance. The unpaid interest is a result of monthly payments being less than the amount required to pay the interest. Negative amortization can occur on a potential or scheduled basis. (a) Potential negative amortization: Negative amortization that results from borrower optional payment caps. (b) Scheduled negative amortization: Negative amortization that is scheduled to occur during the life of the loan.

This is a phenomenon in home lending which occurs when a payment cap restricts the repayment to an amount less than the payment necessary to reduce the principal balance. This has the effect of increasing the loan amount.

Occurs when the monthly payment is not enough to pay interest on your loan. The unpaid interest is added to the unpaid balance of the loan. Instead of reducing the amount you owe, negative amortization means you owe more than you initially borrowed. Usually occurs only on certain adjustable-rate mortgages.

When monthly payments are not enough to cover the interest due each month therefore the loan balance increases.

Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the loan balance increases.

Negative amortization means the mortgage balance is increasing. This occurs whenever your monthly mortgage payments are not large enough to pay all of the interest due on your mortgage. Because payment caps limit only the amount of payment increases, and not interest-rate increases, payments sometimes do not cover all of the interest due on your loan. This means that the interest shortage in you payment is automatically added to your debt, and interest may be charged on that amount.

Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."

An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

Occurs where monthly installment payments are insufficient to pay the interest accruing on the principal balance, so the unpaid interest must be added to the principal due.

An increase in the outstanding balance of a loan created when the payment isn't large enough to cover the interest charged.

Monthly payments that are not sufficient to pay principal and interest on a loan each month. Interest not paid is added to the principal balance thereby increasing the principal balance each month.

An increase in a loan that occurs when the monthly payment is not sufficient to pay the interest due. This amount of the shortfall is added to the balance of the loan.

When a borrower's monthly payment is too small to cover both the principal and interest of a loan. In this case, the unpaid interest is added to the outstanding balance of the loan. The danger of negative amortization is that it gradually increases the mortgage debt, and therefore the home buyer can end up owing more than the original amount of the loan.

(Sometimes called deferred interest) A rise in the loan balance when the mortgage payment is restricted by a payment cap and is less than the interest due. Negative amortization arises most frequently on ARMs. Unpaid deferred interest is added to the loan balance, which means that the borrower ends up owing more than the original amount of the loan.

A situation in which the loan principal is actually increasing, instead of decreasing. This usually happens when the payments are less than the amount of the interest due, so that the overdue interest becomes part of the principal balance. Some ARM loans may incur negative amortization, because as caps are factored in, the capped payment is insufficient to cover the interest due. Thus, the unpaid or deferred interest becomes additional principal. For more information, see the "ARM Loans" article in the "Loan Programs" section.

An actual increase in the principal amount of real estate loan because of the addition of matured but unpaid interest to the loan balance. Usually the result of monthly payments which are temporarily set at a lower than needed level.

A gradual increase in loan debt that occurs when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance which creates "negative" amortization.

When monthly mortgage payments do not cover the principal and interest of a loan and the outstanding balance of the loan grow larger with each payment.

The result of artificially low monthly mortgage payments which do not cover all interest due to the lender. The deferred interest is added to the loan balance which may be higher than the original amount of the loan.

An increase in the outstanding amount when a monthly payment does not cover the monthly interest due.

Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan. PITI--Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

With some mortgages, it is possible to have a payment calculated such that the principal and interest total up to less than the amount that you would normally pay for a self-amortizing loan. In this situation, since your payment does not cover the principal and interest, the amount that you are short is still yet to be paid and can accumulate more interest than would normally be accumulated. Therefore the balance you owe does not decrease as much, and the total amount you will pay for the loan will be more than for a self-amortizing loan. In essence you are financing additional interest.

A loan payment where the outstanding balance of a loan goes up instead of down because the mortgage payments do not cover the amount of interest due.

Loan payments do not satisfy the principle and or interest due on the loan, and the remainder of that payment that is not made is added to the original loan balance, making the principle balance due higher than the amount originally borrowed. The mortgage is generally recast, after this occurs for a certain period of time, or the balance reaches a certain amount. Then the recasting results in a new payment amount.

Increase in mortgage debt that occurs when monthly payments are too low to cover the full amount of interest due. When this shortfall is added to the remaining balance, it creates negative amortization.

A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The portion of the payment, which should be paid, is added to the remaining balance owed. The balance owed is added to the remaining balance to create "negative" amortization.

The situation in which the balance of a loan gets larger, rather than smaller each month because payments made are too small to cover the loan's interest charges. For example, if your monthly payment amount is based on a 4% interest rate but the actual rate being charged on the loan is 7.5%, your payments will not cover the accrued interest and each month the unpaid interest portion will be added to your loan balance.

occurs when the monthly payments do not cover all the interest cost. The interest cost that is not covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an adjustable-rate mortgage (ARM) has a payment cap that results in monthly payments not high enough to cover the interest due. For more information, see our guide explaining how negative amortization works.

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage loan by its maturity date. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

The result of a mortgage repayment plan in which the borrower makes payments that amount to less than the interest due. Unpaid interest is then added to the outstanding loan balance, causing the outstanding loan balance to increase instead of decrease.

"Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called ""deferred interest."" The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization."

When monthly payments are not enough to cover interests costs, they are added to the principal balance, and you may end up owing more than when you started. This is most likely to occur with ARMs that have payment caps.

When monthly mortgage payments do not cover the principal or interest due, rather than declining, the balance on the loan will actual increase.

An increase in a mortgage balance due to the fact that the payment amount is not adequate to cover the entire principal and interest due. The amount of the shortfall is added to the outstanding balance creating "negative" amortization. Adjustable rate mortgages allow the interest rate to fluctuate and can cause negative amortization.

Enter the maximum amount of the total loan value that the borrower can owe, if interest rates fluctuate to a point where the borrower's minimum payment doesn't cover the interest due.

An increase in the outstanding balance of a mortgage that occurs when the monthly payment is not large enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

A loan repayment schedule in which the balance of the loan increases, rather than decreases, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.

The principal amount owed on a loan growing as a result of payments being made as scheduled, but those payments being less than the amount of the interest that has accrued during that payment period. Typically, this is only seen in Variable Rate Mortgages, where the payment does not increase with an increase in the interest rate. (Usually, the increase in the principal owed is called "deferred interest.")

A financing arrangement in which the monthly payments are less than the true amortized amounts and the loan balance increases over the term of the loan rather than decreases; an interest shortage that is added to unpaid principal.

Most times, this is the principal balance of the loan that accrues during the years of a variable rate or graduated payment mortgage when the payments are smaller than market rate. This principal balance of the loan grows because of payments that are not adequate to cover all the interest due.

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the buyer ends up owing more than the original amount of the loan.

The principal balance of the loan actually grows due to payments that are not enough to cover all the interest due. Often, negative amortization accrues during the years of a variable rate or graduated payment mortgage when payments are less than market rate.

Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination or end. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan because only interest is being paid, and no money is applied to the principal balance.

Occur when the monthly payments cover only part of the interest then due. The interest cost that is not covered is added to the unpaid principal balance. This additional amount is additional principal.

A loan schedule in which the principal increases due to a payment that does not cover all of the interest.

A few of the ARM loans periodically adjust interest rates but do not adjust the monthly payment. If interest rates increase too much the fixed payment is not enough to pay off the mortgage. When this happens the mortgage balance can increase instead of decrease. Amortization is the paying down of a loan while Negative Amortization is the increasing of a loan amount.

The opposite of amortization. In the case of an adjustable-rate mortgage with a payment cap, a upward adjustment in the interes t rate may cause the loan payment to be insufficient to cover even the interest portion of the scheduled payment. In this case, the unpaid interest is added to the mortgage loan principal (if the loan agreement permits) and the loan amount increases.

When the amount borrowed for a mortgage or other loan increases because the monthly mortgage payments are not large enough to pay all of the interest due.

This is the increase of a loan balance due to contractual payments being insufficient to cover both principal and interest.

A gradual increase in the mortgage debt caused by unpaid interest that is added to the mortgage principal because the payment is not sufficient to cover the full amount of interest due.

This type of amortization occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan, which may cause the home buyer to owe more than the original amount of the loan.

Occurs when your monthly mortgage payments submitted are not sufficient to pay all interest and principal due on the loan. The unpaid interest is added to the unpaid balance of the mortgage. It could be considered borrowing equity from yourself. The period of time the neg-am is applicable is usually limited on each mortgage.

The unpaid interest that is added to the remaining principal balance of a mortgage when the monthly payment is not large enough to pay all the accrued interest currently due.

Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance.

A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create "negative" amortization.

A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called deferred interest.

Monthy payments fail to cover the cost of the interest on a loan, which is then added to the principal balance. As a result, a borrower could owe more than at the beginning of the loan even after making several payments.

Although it may sound like science fiction jargon, negative amortization occurs when your outstanding mortgage balance increases despite the fact that you're making the required monthly payments. Negative amortization occurs with adjustable-rate mortgages that cap the increase in your monthly payment but do not cap the interest rate. Therefore, your monthly payments do not cover all the interest that you actually owe. If you have ever watched your credit card balance snowball as you made only the minimum monthly payment, then you already have experience with this phenomenon. Avoid loans with this feature

When monthly payments aren't enough to cover interest costs, they are added to the principal balance, and you may end up with a principal balance which is higher than when you started.

When installment payment amounts are less than the interest rate on the mortgage. The principal increases and the borrower owes more than the original sum borrowed. .

The unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Is a loan in which you principle balance - the amount you owe - increases every month. This occurs due to the fact that monthly payments are not sufficient to cover the interest due on the loan. The amount missing to cover the interest is then added to the principal balance. The benefit of a negative amortization loan is that a buyer can afford to buy a higher priced property, with a lower monthly payment. Buyers typically chose this loan for short term, or assuming significant appreciation in value. This disadvantage is that you will owe more than you borrowed, and your loan amount may exceed the property's value at some point.

Loan balance increases as a result of less-than-interest only payments.

Negative amortization occurs when a borrower's monthly payment amount does not cover the interest due and therefore the loan is increased, with the amount of the shortfall being added to the balance of the loan.

The unpaid principal and interest which is added to the mortgage loan causing the mortgage balance to increase rather than decrease.

Occurs when normal payments on a loan are insufficient to cover all interest then due, so that upaid interest is added ro principal. Thus, even though payments are timely made, the principal grows with each payment. Back to the Top

This occurs when monthly payments fail to cover the interest cost. The interest not covered is added to the unpaid principle balance so that even after several payments, you could owe more than you did at the beginning of the loan.

This occurs when monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan. This can result in the borrower owing more than the original amount of the loan.

The situation occurs when a borrower's monthly payment is not large enough to cover both the principal and interest of a loan. As a result, the outstanding balance of the loan actually grows larger with each payment rather than smaller. Most fixed-rate loans are not subject to negative amortization, but many adjustable-rate mortgages are susceptible.

This happens when monthly payments (held down by an interest cap) do not cover the interest cost. The interest that isn't covered is then added to the unpaid principal balance. Which may mean a higher principal amount than originally borrowed.

A loan-payment schedule in which the outstanding principal balance goes up, rather than down because payments do not cover the full amount of interest due. The unpaid interest is added to the principal. This is a feature of many graduated-payment mortgages.

A condition which occurs when the interest due each period exceeds the amount being paid thereby increasing the mortgage balance.

An increase in the outstanding mortgage balance that occurs when the amount of interest due is greater than the borrowerâ€™s monthly payment, and the difference is added to the mortgage principal.

An increase in the outstanding balance of a loan when a monthly payment is not large enough to cover all of the interest due.

Increase in the unpaid loan balance created when monthly payments do not cover both principal and interest and unpaid interest is added to the principal balance.

Refers to a situation when the payment the borrower makes on the loan is not enough to cover both the interest owned and the balance. The outstanding interest is added back into the loan.

negative amortization occurs when monthly payments fail to cover the interest cost.

Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt.

An increase in the principal balance of a mortgage loan which occurs whenever the required monthly payment is insufficient to pay the interest due for the loan and the balance is added to the principal.

If the payment amount is insufficient to pay the actual amount of interest due, the unpaid (deferred) interest would then be added to your loan balance.

Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result.

A situation which may occur on variable rate loans which have the payment cap feature. Because your monthly payment is capped, your adjusted payment amount may, at times, be insufficient to pay the actual amount of interest due. The unpaid deferred interest will then be added to your loan balance. This increase in your loan balance is known as negative amortization. A borrower usually has the option of increasing the monthly payment in any given month to avoid negative amortization.

Negative amortization occurs when the payment installments fail to cover the interest or the principal, and thus the entire balance owed increases.

Occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments the borrowers could owe more than they did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.

A situation in which the monthly payment being made is less than the amount of interest being charge for the loan. The unpaid interest is added to the loan's principal and the borrower ends up owing more than the original loan amount.

A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance to create "negative" amortization. Back

If monthly payments do not cover interest due on the loan, the additional amount is added to the unpaid amount of the loan. May increase the final amount owed on the loan, but if used properly can be very helpful.

An increase in the outstanding balance of a loan resulting from the failure of periodic debt service payments to cover required interest charged on the loan.

A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.

Occurs when an outstanding mortgage balance increases despite the fact that the borrower is making the required monthly payments. Negative amortization occurs with adjustable-rate mortgages that cap the increase in the monthly loan payment but do not cap the interest rate. Therefore, the monthly payments do not cover all the interest that the borrower actually owes.

When the amount that you owe on a loan increases despite regular monthly payments. This typically happens with an adjustable rate mortgage (ARM) that has a payment cap. This means that your monthly payment can only increase up to 7.5% from the last adjustment period.

A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Mortgage loans in which the initial payments are less than required to properly pay off the loan balance. The remainder of the payment normally due is added back into the loan contract, to be paid at a future time. In many cases the balance due on a mortgage of this type, actually grows instead of decreasing as it would in a normally amortized mortgage.

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Payment terms under which the borrower's monthly payments are insufficient to cover interest due, thus increasing the loan balance.

the process by which a loan balance grows over time due to the accruing interest and fees that are not being regularly paid by the borrower

A loan payment schedule that increases rather than decreases the outstanding principal balance, because the payments do not cover the full amount of interest due (deferred interest). The unpaid interest is then added to the principal.

Negative amortization occurs when the monthly payments on a loan are insufficient to pay the interest accruing on the principal balance. The unpaid interest is added to the remaining principal due. A combination of negative amortization and depreciation in home prices may result in a loan balance that is higher than the market value of the home.

Return To Glossary Index Amortization whereby the payment is insufficient to fund complete repayment of the loan at its end of term. Often occurs when an increase in the monthly payment is limited by a ceiling or cap. The part of the payment which should be paid is added to the remaining balance. Thus balance owed may increase, rather than decrease over the life of the loan.

when the monthly payments are not large enough to pay the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan so that the borrower tends to end up owing more than the original amount of the loan.

A loan repayment schedule whereby the outstanding principal balance increases, rather than being amortized, because the scheduled periodic payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, for repayment at a later stage. Français: Amortissement négatif Español: Amortización negativa

When monthly payments aren't enough to cover interest cost, they are added to the principal balance, and you may end up owing more than when you started. This is most likely to occur with Adjustable Rate Mortgages (ARMs) that have payment caps. Close

A feature of interest only loans, negative amoritization occurs when the payments made do not cover the interest due. The remaining interest owed is added to the oustanding loan balance, making it larger than the original loan amount.

This happens when the minimum monthly payment on an adjustable rate mortgage is no longer large enough to cover the full amount of interest that is due. The difference between interest owed and interest paid may then be added to the loan's principal balance, at the option of the buyer.

Increase in principal balance which occurs when monthly payments are not large enough to pay all interest due on a loan, usually caused when payment caps prevent sufficient payment increases. Unpaid deferred interest is added to the loan balance, which means that the borrower ends up owing more than the original amount of the loan.

When a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to the principal balance, causing the loan balance to increase instead of decrease.

(Also called "Deferred Interest"). If the payments are too small to cover the interest due on a loan, the remaining interest owed is added to the outstanding loan balance, causing negative amortization.

When monthly payments are not substantial enough to satisfy all of the interest due for the particular payment, resulting in the unpaid interest being added to the unpaid loan balance, therefore causing the unpaid loan balance to increase, rather than decrease.

(also know as "deferred interest") The opposite of amortization. The loan balance goes up instead of down until the payments reach a fully-amortizing level.

When monthly payments do not cover the interest there is an increase in the principal balance. This is means that the principal balance will increase.

The accrual feature found in numerous participating debt structures that allows an investor to pay, for an initial period of time, an interest rate below the contract rate stated in loan documents.

The process which occurs when payments on a graduated payment mortgage or an adjustable-rate mortgage are insufficient to pay the interest due on the loan balance. The unpaid interest is added to the principal increasing the balance owed by the borrower. Adjustable rate mortgages with payment caps (as opposed to interest rate caps) may feature negative amortization.

When the outstanding balance of a loan grows larger because each monthly payment is too small to cover both the principal and interest of that loan. This sometimes happens with adjustable rate mortgages.

See capitalized interest.

Occurs when a borrower's monthly payment is too small to cover both the principal and interest of a loan, so the outstanding balance of the loan actually grows larger with each payment. Many adjustable rate mortgages are susceptible to this.

When the periodic payments on a loan are not sufficient to pay the interest which has accumulated. This results in an increase rather than a decrease in the amount owing on the mortgage. Also referred to as a deferred interest. back

An increase in the principal of a loan, when the loan payments are insufficient to pay the interest due. The unpaid interest is added to the outstanding loan balance causing the principal to increase rather than decrease as payments are made. This situation typically occurs in an adjustable mortgage with an annual cap limiting any increases in the interest rate, and also in a graduated payment mortgage, which has low initial payments so moderate-income borrowers can afford to make the loan payments.

A gradual increase in the balance of a loan or mortgage which occurs because the monthly payments made are too small to cover the entire principal and interest charges; this shortfall amount is added to the remaining balance, resulting in negative amortiz

An increasing value of the principal of a loan resulting from re-payment amounts being smaller than interest accrued.

An increase in a mortgage loan balance that occurs when the monthly payment is too small to cover the principal and interest due. The amount of the shortfall is added to the remaining balance to be repaid later.

It is the result of an increase of the loan balance due because the monthly loan payments are insufficient to pay the interest and/or principal necessary to payoff the loan.

An increase in the outstanding balance of a mortgage that occurs when your monthly payment is not large enough to cover all the interest due on the loan. This shortfall is added to the unpaid balance of the loan, thus creating negative amortization. The risk of negative amortization is that a home buyer could end up owing more than the original amount of the loan.

A gradual increase in mortgage debt that occurs when the periodic monthly payment is not sufficient to cover the monthly principal and interest due. The amount of the deficit is added to the remaining principal balance to create negative amortization.

In finance, negative amortization, also known as NegAm, is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment.