Negative Amortization | Practical Law

Negative Amortization | Practical Law

Negative Amortization

Negative Amortization

Practical Law Glossary Item 3-502-1270 (Approx. 2 pages)

Glossary

Negative Amortization

An increase in a loan balance, especially in an adjustable rate mortgage (ARM). Some ARMs permit the interest rate to change without any relation to a minimum payment requirement. When a borrower makes a minimum payment that does not cover all interest due under a current interest rate, the unpaid interest amount is deferred. The deferred interest is added to the principal loan balance, which negatively amortizes as a result.