Negative Amortization

Negative amortization can occur when the monthly mortgage payment amount is not adequate for both the interest and principal of the loan, resulting in a gradual increase of the loan balance rather than a decrease. In an ideal situation, the overall loan balance progressively decreases throughout the life of the loan. Fixed interest rate loans are unlikely to be impacted by negative amortization because the interest rate remains constant for the life of the loan. Conversely, adjustable interest rate loans are susceptible to negative amortization since the rate fluctuates on scheduled intervals. Borrowers can reduce the chances of negative amortization occurring on their next home loan by specifically requesting an adjustable interest rate loan. By simply conveying this request to the mortgage broker during the preliminary stages of the application process, they can obtain the loan that works best for them.