Deferred Interest Definition

Some loan payment amounts allow for interest payments to be deferred by adding them to the principal amount of the loan. For example, a large loan requires a monthly payment of $1,000; the loan will accept a monthly payment of $750, the other $250 being considered deferred interest and added to the principal amount. As you can see, a deferred interest payment actually increases the loan amount and is therefore sometimes called negative amortization. In some states, deferred interest mortgages have become popular-even though financially unwise. Payment Option ARM’s and Graduated-payment Mortgages are two common types of deferred interest mortgages.