Negative Amortization Schedule


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Negative Amortization Schedule

When mortgage or loan payments are in excess of the interest due, it is a normal amortization schedule. The balance owing decreases after every payment.
When mortgage or loan payments are exactly equal to the interest due, it is called an interest only schedule. The balance owing remains the same after each payment.
When mortgage or loan payments are less than the interest due, it is called a negative amortization schedule. The balance owing increases after each payment, because the missing interest is added to the balance.
When mortgage or loan payments are set to zero in the MORTGAGE2 PRO amortization schedule the schedule becomes an expanded Present Value Future Value grid.

A negative amortization schedule
What if a lender offered you a $150,000 loan (or mortgage) at 6% for 30 years and told you the monthly payments would be $600 per month. This may sound like a sweet deal but be cautious! If you had an amortization schedule you notice that the blended monthly payments for 30 years would have to be $899.33 in order to retire the loan.

(Screenshot 1)

In fact if you only paid $600 per month the loan would never be paid off. The balance owing would continue to increase with time because it is a negative amortization schedule. In fact some lenders have been known to entice new borrowers with a variation of this technique.

Offer the borrowers $600 per month for the first year then switch them to the regular payments of $899.93

(Screenshot 2)

After 30 years of payments,... surprise surprise ... you still owe a balance of $20,941.65

(Screenshot 3)