About the Negative Amortization Calculator
This negative amortization calculator shows what happens when your loan payment is smaller than the interest charged each month. The unpaid interest — often called deferred interest — is added to the balance, so you owe more over time instead of less. Enter the balance, rate, the payment you are making and how long the reduced payment lasts to see the balance grow month by month.
Negative amortization appears in payment-option ARMs, graduated-payment mortgages, some commercial loans and income-driven student loan plans where the payment is based on income rather than the balance. Most neg-am mortgages have a cap — typically 110% to 125% of the original balance — and once it is hit, or the option period ends, the loan recasts to a fully amortizing payment over the remaining term.
The calculator finds when the cap is reached, the balance at recast and the new payment, and compares it with your current payment so you can see the payment shock in advance. It assumes a fixed interest rate throughout; on an adjustable loan, rising rates make the balance grow faster.
With the default inputs, the balance at recast is $317,898.23. Change any value above to recalculate instantly.
How to use the negative amortization calculator
- 1Enter the starting balance and interest rate.
- 2Enter the monthly payment you are making (the minimum or option payment).
- 3Set how long the reduced payment lasts and the loan’s negative amortization cap.
- 4Enter the full loan term to calculate the recast payment.
- 5Review the balance chart and the payment increase at recast.
Formula and method
Each month interest of Bₖ₋₁ × r is charged on the balance, with r = annual rate ÷ 12. When your payment is less than that interest, the difference is added to the balance, so the balance grows and next month’s interest is larger still — interest compounds on unpaid interest.
The loan recasts when the reduced-payment period ends or when the balance reaches the negative amortization cap, whichever comes first. At recast the new payment is the level payment that repays the balance B over the N months left in the original term, using the standard amortization formula. The payment increase is the recast payment compared with the payment you were making.
- Bₖ
- Balance after month k
- r
- Monthly interest rate (annual rate ÷ 12)
- PMT
- Your monthly payment during the reduced-payment period
- N
- Months remaining in the term at recast
Worked examples
$300,000 at 7%, paying $1,500 for 5 years
Interest in month one is $1,750, so a $1,500 payment leaves $250 unpaid. Because unpaid interest compounds, the balance reaches about $317,899 after 60 months — under the 115% cap. Recast over the remaining 25 years, the payment jumps to about $2,247, roughly 50% higher.
Low payment hits a 110% cap early
Paying only $1,000 against $1,750 of interest adds $750 or more each month. The balance crosses the 110% cap of $330,000 in month 37, so the loan recasts early and the payment more than doubles to about $2,278 for the remaining 323 months.
Frequently asked questions
What is negative amortization?+
Negative amortization happens when a loan payment is smaller than the interest due, so the unpaid interest is added to the balance. You end up owing more than you borrowed, even though you are making every payment on time.
What is a negative amortization cap?+
It is the maximum the balance can reach, usually 110% to 125% of the original loan amount. When the balance hits the cap, the loan recasts immediately to a fully amortizing payment, which can be a large increase.
Are negative amortization mortgages still allowed?+
In the US, loans with negative amortization cannot be Qualified Mortgages under the CFPB’s Ability-to-Repay rules, so they are now rare for home purchases. They still appear in some non-QM, commercial and reverse-style products.
Do student loans negatively amortize?+
They can. On income-driven plans a payment below the monthly interest lets unpaid interest build up. Some federal plans have offered interest subsidies to limit this, so check your plan’s current rules.
How do I stop negative amortization?+
Pay at least the full monthly interest — the interest-only amount — so the balance stops growing. Paying the fully amortizing amount also reduces principal and avoids payment shock at recast.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.