A man balances precarious stacks of interest payments on top of a growing mortgage principal, representing the short-term flexibility and long-term risks associated with negative amortization.

Understanding Negative Amortization: Risks and Considerations for Institutional Investors

Mortgage

Introduction to Negative Amortization Negative amortization is an intriguing financial concept where a loan’s principal balance increases instead of decreasing due to unpaid interest added to the outstanding balance. This phenomenon is frequently associated with specific mortgage products, such as payment option adjustable-rate mortgages (ARMs) and graduated payment mortgages (GPMs).

Read more