Amortization of a
loan in which the principal amount
outstanding increases as a result of
insufficient payments to offset interest
charges. Negative amortization can occur
when principal and interest payments remain
constant but the mortgage is subject to
interest charges during the term.
An increase in
interest rate results in high interest being
charge, but constant payments are not large
enough to address the additional interest.
Such interest is then added to the
outstanding balance.
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