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Glossary of Notary Public, Mortgage, Signing Agent, and Loan Signing Terms.

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Negative Amortization

Function: noun

Definition 1:
Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize." There are cases with specialized mortgage products where the borrower is allowed to pay less than the minimum interest for the first few years, such as in a Graduated Payment Mortgage. Negative Amortization could be very risky for a lender, particularly if the debt to value ratio is high, or in a sinking real estate market.

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Amortization Term