What Is Negative Amortization?

Video Transcript

"This is financial adviser Patrick Munro talking about what is negative amortization. In the world of mortgages, an amortization schedule really means the period of time that it takes to retire. Or the French word, mort means to die. Really to put away and no longer is the debt that you have. You've got your home paid off or your mortgage paid off. What happens though, in the new world of mortgages. If property values go down. In fact, the interest rates can continue to go up on the mortgage. In which case, the pay down reverses itself. There is more mortgage interest and your bill actually is increasing. This is called negative amortization as opposed to positive amortization. Where by, over a period of time you pay off the loan. It's problematic. The way you solve it, is to generally refinance the mortgage. If you can or add principal payments, excess money to the schedule. Schedule payment, in order to bring it back down. To an area where you're paying off the loan. This is Patrick Munro discussing the concept of negative amortization."