In real estate finance, negative amortization is a condition that occurs when the required loan payment is less than the interest accruing on the loan. As a result, unpaid interest is added to the principal balance rather than being fully paid each period.
Even though the borrower makes payments on time, the total amount owed on the loan increases instead of decreasing. Negative amortization is typically associated with certain adjustable or alternative mortgage products and can significantly increase the borrower’s debt over time.
