 Negative Amortization
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Negative Amortization
This situation occurs when interest accrued during a payment period is greater than the scheduled payment and the excess amount is added to the outstanding loan balance. For example, if the interest rate on an ARM exceeds the interest rate cap, then the borrower's payment will not be sufficient to cover the interest accrued during the billing period. The unpaid interest is then added to the outstanding loan balance.
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