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Negative amortization - permalink

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  • An increase in the outstanding balance of a loan resulting from the failure of periodic payments to cover required interest charged on the loan. Generally occurs during the first 5 to 10 years of the life of a graduated payment mortgage (GPM) and under indexed loans for which the applicable interest rate may be changed without affecting the monthly payments.
    U.S. Census Bureau - Cite This Source - This Definition
  • 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.
    US Department of Housing and Urban Development - Cite This Source - This Definition
  • 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.
    Ginnie Mae - Cite This Source - This Definition
  • Occurs when the monthly payments in an adjustable-rate mortgage loan do not cover all the interest owed. The interest that is not paid in the monthly payment is added to the loan 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 that are not high enough to cover the interest due or when the minimum payments are set at an amount lower than the amount you owe in interest.
    The Federal Reserve Board - Cite This Source - This Definition
  • 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.
    Federal Trade Commission - Cite This Source - This Definition
  • Browse Related Terms:   Amortization,   Flexible payment mortgage (FPM),   Fully Amortized Mortgage,   graduated payment mortgage (GPM),   Level payment mortgage,   Remaining Term,   Self-amortizing mortgage,   term
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