negative amortization

noun

1. the increase of the principal of a loan by the amount by which periodic loan payments fall short of the interest due, usually as a result of an increase in the interest rate after the loan has begun.

Example Sentences

The rapid pace of interest-rate hikes by the Bank of Canada since last year has pushed some mortgages into negative amortization, which occurs when interest on a loan exceeds the fixed payment on the principle -- resulting in borrowers adding to the principle on their loans.

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While not all banks allow negative amortization, consumers have to adjust their repayments in line with rising interest rates.

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CIBC's CFO Hratch Panossian told Reuters in an interview that about 8,000 clients had increased their monthly payments and just over 1,000 clients made lump-sum payments, to remove their mortgage from the negative amortization status, as a result of the outreach during the third quarter.

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Negative amortization is a situation in which borrowers are adding to the principal, and occurs when interest rates climb as high as the trigger rate.

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About 31% of BMO's mortgages are amortized over 30 years and include those with negative amortization and a quarter of TD's mortgages will be repaid after 35 years.

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