When your monthly payment is smaller than the interest the loan accrues, the unpaid interest is added to your balance and the loan grows. Enter your terms to see how much the balance rises during the teaser period and what the payment becomes when the loan recasts.
Negative amortization occurs when the scheduled payment is below the interest accrued at the fully-indexed rate.
| Loan Balance | Rate | Monthly Payment | Teaser | Balance After Teaser | Balance Growth | Recast Payment |
|---|---|---|---|---|---|---|
| $400,000 | 7.0% | $1,800 | 60 mo | $438,183 | +$38,183 | $2,915 |
| $400,000 | 7.0% | $1,000 | 60 mo | $495,457 | +$95,457 | $3,296 |
| $300,000 | 6.5% | $1,200 | 36 mo | $316,843 | +$16,843 | $2,003 |
| $500,000 | 7.5% | $2,000 | 60 mo | $581,593 | +$81,593 | $4,067 |
Every row is generated by the calculator's own formula: balance compounds at rate/12 each month, then the recast payment amortizes the grown balance over 30 years at the same rate. Interest is computed on the post-payment balance each month.
The word "amortization" means paying down principal. Negative amortization is the opposite: the loan balance goes up while you make every scheduled payment on time. It happens whenever your payment is lower than the interest that accrues that month.
On a $400,000 loan at 7%, the monthly interest is $2,333. A $1,800 payment is $533 short, and that $533 is added to the principal. Next month you pay interest on $400,533 — so the shortfall compounds. Over five years the balance reaches $495,457, not $400,000.
This structure appeared most famously in Option ARM and payment-option mortgages from 2004–2007, where borrowers could choose a "minimum payment" that was intentionally set below the interest-only amount. Lenders called it "deferred interest." Regulators later restricted the practice; today it mostly survives as a recast risk on interest-only or construction-to-permanent loans where the payment was qualified on a teaser rate.
Pay the full interest-only amount even if the contract allows less — that stops the compounding at zero. Ask the servicer for the exact recast date and the projected payment at today's index. If the projected payment is unaffordable, refinancing or selling before the recast is usually cheaper than waiting, because the balance is already above where you started.
This tool matters if you hold or are being offered a loan where the payment can be below the interest due. That includes:
If your payment already covers interest and principal, you do not have negative amortization — this calculator will show a declining balance and a small recast change.
No, but it is heavily restricted. The CFPB requires lenders to disclose it and to qualify borrowers on the fully-indexed rate, not the teaser. A few loan types still allow it; a standard 30-year fixed never does.
Yes — that is the definition. Most contracts cap negative amortization at 110–125% of the original balance, at which point the loan recasts immediately and the payment jumps earlier than you expected.
Paying the full interest-only amount stops the balance from growing. Paying more than interest-only actually reduces principal. Even a small extra amount each month breaks the compounding effect entirely.
Only if you qualify at the fully-indexed rate with the grown balance. That is harder than it sounds, because the balance is higher and the rate is higher than when you closed — which is why acting before the recast matters.
The recast payment includes principal. An interest-only payment covers interest alone; a fully-amortizing payment must also retire the entire (now larger) balance over the remaining term, so it carries both the bigger balance and the principal component.
⚠️ Important Note: Negative amortization results depend on the fully-indexed rate staying at the level you enter. Real ARMs reset on a schedule tied to SOFR or the MTA index and may cap annual increases, so your actual balance path can differ. This calculator is an educational estimate, not a loan payoff quote — confirm the exact recast date, cap, and index with your servicer before making a decision.