Negative Amortisation

Negative amortisation occurs when the principal balance on a loan (usually a mortgage) increases because the borrower\'s payments don\'t cover the total amount of interest that has accrued. . Certain low-start mortgages, for example, give the borrower the option to make discounted payments in the early period of the repayment schedule. The unpaid interest each month is capitalised i.e. added to the balance so the size of the loan rises.