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Mortgage Knowledge Base Mortgage Glossary Negative Amortization

Negative Amortization

Negative Amortization is a situation in which the borrowers monthly payment is not sufficient enough to cover both the principal and interest of loan.

Features:

  1. Here the outstanding principal balance goes up.
  2. Insurance premiums are called impound or reserves.
  3. The monthly shortfall in payments is added to the unpaid principal balance.
  4. These loans have payment adjustment caps instead of interest rate adjustment caps.
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