Negative Amortization Definition

A loan in which the principal increases over time is said to be negatively amortizing. The most common cause for a negatively amortizing loan is a stipulated payment of less than the interest charged over the same payment period, such that the outstanding balance due increases every payment period. Some mortgages, such as graduated payment mortgages, may be negatively amortizing for the first few years of the term and thereafter amortize. In the modern mortgage market, there are several varieties of negatively amortizing loans.