As rates climbed, some variable-rate borrowers discovered an unsettling term: negative amortization. When your fixed monthly payment no longer covers the interest owed, the shortfall is added to your principal — so your balance grows even as you pay every month. Understanding how this happens is the first step to fixing it.
How a payment stops covering interest
Some variable mortgages hold the payment fixed while the rate floats; when rates rise enough that the interest portion exceeds the payment, the difference capitalizes onto the principal. Your statement shows a growing balance and a stretching amortization — sometimes well beyond the original schedule. You're still paying; you're just no longer progressing.
Why it matters
A growing balance means more interest over the life of the loan and a larger amount to refinance or renew later. Left unchecked, it can trigger a lender's trigger rate — the point at which the lender requires a payment increase. The sooner you act, the smaller the adjustment needed; the longer you wait, the larger the correction.
What to do about it
Options include increasing your payment to cover the interest, making a lump-sum prepayment, switching to a fixed rate, or extending amortization to lower the payment. Each trades something — cash flow, rate certainty, or time. We model your specific mortgage against current rates so the fix you choose actually closes the gap rather than merely masking it.
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