What Is a Negative Amortization Calculator?

A negative amortization calculator shows what happens when a loan payment is smaller than the interest the balance accrues. Instead of reducing principal, each payment leaves a shortfall that is added to the balance, so the amount owed grows month after month. The tool quantifies that growth, the point at which the loan reaches its capitalisation cap, and the payment required afterwards.

The pattern appears in option adjustable-rate mortgages, in interest-only products once the rate rises above the assumed level, and in some deferred-payment arrangements. It is not automatically a sign of a bad loan, but it is a structure with a delayed reckoning: the balance is larger and the remaining term is shorter when the payment is eventually recalculated, so the increase arrives all at once.

How the Balance Growth Is Calculated

Monthly interest is the outstanding balance multiplied by the annual rate divided by twelve. If the payment exceeds that charge, the difference reduces the balance and the loan amortises normally. If the payment is below it, the shortfall is added to the balance, and because the next month's interest is charged on the larger figure, the growth compounds modestly rather than staying linear.

The simulation runs month by month until the balance reaches the capitalisation cap, which is the original loan multiplied by the cap percentage, commonly a hundred and ten percent. At that point the balance is recast: the capped balance is amortised over the months remaining in the original term at the same rate, producing the new required payment. Comparing that figure with the current payment is the practical purpose of the calculation.

Understanding Your Results

The primary card shows the monthly balance growth where the payment falls short, or the balance reduction where it does not, together with the monthly interest charge and the payment. The three statistics beside it give the months until the cap is reached, the amount added to the balance and the recast payment. The breakdown table traces the balance year by year, with interest charged and principal added in each period.

Summary Statistics collects the starting balance, monthly interest, shortfall, capitalisation cap, months to cap, balance added, growth as a percentage of the original loan and the payment after recasting. The most useful action is usually the least dramatic: raising the payment to the fully amortising amount now, which stops the balance from growing and avoids both the larger recast and the extra interest that a growing balance generates. Ask the servicer for that figure in writing and compare it with the cap scenario above.