Negative Amortization

Definition

  • A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance to create "negative" amortization.

Synonyms
deferred, reverse amortization, increasing amortization

Related Terms and Acronyms

  • Amortization Definition,
    • Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.
  • Amortization Table Definition,
    • A mathematical formula used to calculate monthly mortgage payments based on the borrowed loan amount, the interest rate, and the loan term.
  • Reverse Mortgage Definition, Important,
    • A loan that allows an older homeowner to convert built-up equity into cash. The loan comes due when the owner dies, sells the house or moves out.
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