Mortgage Glossary
Negative Amortization
Defined by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
Negative amortization happens when a payment is too small to cover the interest due, so the unpaid interest is added to the principal and the balance grows.
What Negative Amortization means
It can occur with certain payment-option ARMs. The borrower owes more over time despite making payments, increasing the risk of being underwater.
Florida example
A Florida borrower on an option-ARM who chooses the minimum payment sees their $300,000 balance creep upward. Qualified-mortgage rules largely banned these features for their risk to consumers.
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