Negative Amortization Calculator
See how much a loan balance grows when the payment is less than the interest: deferred interest added, balance after each month, when the balance cap triggers a recast and the payment shock afterwards.
How it works
Monthly interest = balance × rate ÷ 12 · if payment < interest: balance += interest − payment (deferred interest) · recast payment = new balance × i ÷ (1 − (1 + i)^−(months left)) · cap check: balance ≥ cap % × original loan
Negative amortization happens when a loan’s required payment is smaller than the interest charged, so the unpaid interest is added to the principal and the debt grows. It appears in option or payment-capped adjustable-rate mortgages, some graduated-payment loans and income-driven student-loan plans. The danger is the recast: once the balance hits its cap (often 110%–125% of the original loan) or a scheduled date arrives, the payment is reset to fully amortize a bigger balance over fewer years — a sharp payment shock.
Worked example
A 200,000 loan at 6% accrues 1,000 of interest a month. Paying only 900 leaves 100 unpaid in month 1, which is added to the balance; because interest is then charged on the larger balance, after 24 months the balance is 202,543.20 — 2,543.20 of deferred interest. The 110% cap (220,000) is not reached, but if the loan recasts then over the remaining 336 months the payment becomes 1,245.89, versus 1,199.10 had it been fully amortizing from the start.
Sources: CFPB — What is negative amortization? · Wikipedia — Negative amortization
Frequently asked questions
What is negative amortization?
It is when your payment does not cover the interest, so the shortfall is added to what you owe. Your balance rises even though you pay every month.
How do I stop negative amortization?
Pay at least the interest-only amount shown; anything above that starts reducing principal. Paying the fully amortizing payment keeps the loan on its original schedule.
What is a recast and why does the payment jump?
A recast recalculates the payment so the larger balance is repaid over the remaining term. Because the balance is higher and the time is shorter, the new payment can be far above the old minimum.
Are negative-amortization mortgages still allowed?
In the US, loans with negative amortization cannot be Qualified Mortgages under the CFPB’s ability-to-repay rule, so they are rare; they still exist in some other markets and in student-loan repayment plans.
Related calculators
Estimates for education and planning, not financial advice. Lenders’ contracts, fees, day-count and rounding rules differ — check the official cost disclosure (APR / TAE / CAT) and your loan agreement before deciding.