Real Estate Terms Glossary
What is Negative Amortization?
Note that negative amortization occurs when a borrower’s monthly payments don’t cover all of the interest owed. It usually happens when you make a minimum payment, which does not cover the interest. This is why it is added to your unpaid loan balance. And ultimately, you will end up with more debt.
You will find negative amortizations in some kinds of mortgage loans, like payment option ARMs (adjustable-rate mortgages).
Examples of Negative Amortization
- Example 1: Negatively amortized student loans
Here’s Investopedia’s definition of Negative Amortization .
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