What Is Negative Amortization?
Negative amortization occurs when a loan's payment is smaller than the interest accruing, so unpaid interest gets added to the principal balance — meaning the loan balance grows over time instead of shrinking.
Why it matters
A borrower can end up owing more than they originally borrowed, which is especially risky if the property's value doesn't keep pace with the growing loan balance.
Related Terms
More Financing Terms
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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