How to Get a Negative Amortization Loan

A negative amortization loan is one where your loan balance does not decrease but increases as you make monthly payments. Without reviewing the actual calculations, it is important to know why this occurs. Your actual monthly payment is not large enough to cover the interest that has accrued for that month. Despite the potential dangers of this loan, there are a few scenarios where you need to know how to get a negative amortization loan.


  1. Image titled Get a Negative Amortization Loan Step 1
    Reach out to banks to determine what ones offer this mortgage product. Depending upon the economy, some banks may curtail the negative amortization loan availability.
  2. Image titled Get a Negative Amortization Loan Step 2
    Determine the loan variables for the negative amortization loan you are considering.
    • Most negative amortization loans utilize an interest rate that potentially adjusts over time. This may increase the potential dangers associated with this loan. It is best to avoid a loan with a variable rate as it is inherently risky enough without the added perils of an adjustable-interest rate.
  3. Image titled Get a Negative Amortization Loan Step 3
    Calculate the amount of negative amortization for the current month.
    • Compare the minimum monthly payment with the interest accrued for the previous month.
    • For example: A $100,000 loan for 30 years with an interest rate of 5 percent would have interest due for the first month equal to: $100,000 times .05 divided by 12. This equals $416.67. If your minimum monthly payment is $375, your negative amortization for that 1 month alone would be $416.67 minus $375, which equals $41.67.
    • After your first payment, your new loan balance would be $100,000 plus $41.67, which equals $100,041.67.
  4. Image titled Get a Negative Amortization Loan Step 4
    Determine if your financing scenario is worthy of the risk associated with this mortgage.
    • One scenario may include a gainfully employed individual who receives a modest yearly salary with huge annual bonuses. The mortgagor can pay down their mortgage with a hefty lump sum once per year upon receipt of this bonus.
    • Another scenario may be a professional with a career path whose income will increase exponentially in the near future. The low payments (and resulting negative amortization) can be helpful to a recent graduate who has yet to reach his or her earnings potential.
  5. Image titled Get a Negative Amortization Loan Step 5
    Be vigilant, and ask questions to clarify any facet of this loan that may be unclear.
    • The only method to get out of the negative amortization loan is to refinance the loan. If your property values have decreased since your loan's origination, your options may be limited or even unavailable.


  • Negative amortization loans have several other names that include "Pick a Pay," "Neg. Am. Loan," or "Option Arm."


  • While lenders have curtailed their previous risky lending guidelines, their underwriting decisions will not assess your personal reason for choosing this mortgage. Their decision will evaluate their own level of risk as they consider lending you money using a negative amortization loan.

Article Info

Categories: Mortgages and Loans