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| Negative Amortization | When the amount owed on a loan increases despite making regular monthly payments. | |
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Additional comments : Negative amortization typically happens with an adjustable rate mortgage (ARM) that has a payment cap. This means that the monthly payment can only increase a maximum amount from the last adjustment period. Here's how this type of loan works: the lender gives three options on how to pay the monthly loan payment. Typically, these are (1) the full amount that's due, which covers both the principal and interest (2) the amount based on the payment cap or (3) interest only. |
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