what is negative amortization and why should I be afraid of it?

Negative amortization arises when the mortgage payment is smaller than the interest due and that causes your loan balance to increase rather than decrease. if(window.yzq_d==null)window.yzq_d=new Object(); window.yzq_d['3Ga9BNG_Rv0-']='&U=12cth2iev%2fN%3d3Ga9BNG_Rv0-%2fC%3d-1%2fD%3dLREC%2fB%3d-1%2fV%3d0'; Your mortgage payment has two parts: an interest payment covering the interest due for that month, and a principal payment. The principal payment reduces the loan balance and is called "amortization." For example, the monthly mortgage payment on a 30-year fixed-rate loan of $100,000 at 6% is about $600. In the first month, the interest due the lender is $500, leaving $100 for amortization. The balance at the end of month one would be $99,900. The $600 payment is a "fully amortizing" payment. If you continue to pay that amount every month during the period remaining to term and the interest rate does not change, the loan will be paid off at term. A $550 payment would be partially amorti ... more

" Negative amortization arises when the mortgage payment is smaller than the interest due and that causes your loan balance to increase rather than decrease. Your mortgage payment has two parts: an interest payment covering the interest due for that month, and a principal payment. The principal payment reduces the loan balance and is called "amortization." For example, the monthly mortgage payment on a 30-year fixed-rate loan of $100,000 at 6% is about $600. In the first month, the interest due the lender is $500, leaving $100 for amortization. The balance at the end of month one would be $99,900. The $600 payment is a "fully amortizing" payment. If you continue to pay that amount every month during the period remaining to term and the interest rate does not change, the loan will be paid off at term. A $550 payment would be partially amortizing, leaving a balance at the end of the loans term. A $500 payment would just cover the interest there would be no amortization. If your payment i ... more