Business and Personal Finance Dictionary

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• NEGATIVE AMORTIZATION
  
  Should your monthly mortgage payments not be sufficient to pay the interest due on your mortgage due to a payment cap, negative amortization may occur. Because payment caps limit only the amount of payment increases, and not interest-rate increases, payments sometimes don’t cover the interest due on your loan. If your ARM allows for negative amortization, the interest shortage in your payment will be automatically added to your debt, and interest may be charged on that amount. Your mortgage balance increases, and you may owe the lender more later in the loan term than you did at the start .
  
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