| Negative Amortization | |
 The increase in the balance of a loan caused by interest payments being larger than the re-payments made on the loan. On adjustable-rate mortgages, if the monthly payments are not enough to cover both the interest and principal payments on the loan, the shortage is added to the principal. This situation occurs when the mortgage payments reach the maximum (as defined by the loan agreement) while the interest rate on the loan is increasing. |
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 The good thing about negative amortization is that it allows mortgage payments to stay under a certain level if the interest rate on an adjustable rate mortgage increases. However, the bad thing about negative amortization is that eventually, the mortgage payments may need to increase to allow the larger loan amortize over its remaining life. Thus, the increase in monthly payments can be significant. |
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 Understanding Your Mortgage - We walk through the steps needed to secure the best loan to finance the purchase of your home. What is the best way to pay off my mortgage? Understanding the Mortgage Payment Structure - We explain the calculation and payment process as well as the amortization schedule of home loans. Mortgages: Fixed-Rate versus Adjustable-Rate - Both of these have advantages and disadvantages depending on your financial needs and prospects. |
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