Negative Amoritization.

[badmomma]

This is when your house payments are not large enough to cover the interest that is accruing on the principle.

When home prices are appreciating rapidly,negative amortization is less of a possibility than when prices are stable or dropping, particularly for the borrower who made a small cash down payment to begin with. The combination of negative amortization and depreciation in home prices can result in a loan balance that is higher than the market value of the home. Adjustable rate mortgages with payment caps and negative amortization are usually reamortized at some point so that the remaining loan balance can be fully paid off during the term of the loan. This could necessitate a substantial increase in the monthly payment. Most ARMs have a limit on the amount of negative amortization allowed, usually 110 to 125 percent of the original loan amount. If the loan balance exceeds this amount, the borrower has to start paying off the excess.

Now I don't know how one is supposed to know if they are in this situation. I do know that I have gotten money back from my bank at the end of the year. Due to overpayment of either the interest or the insurance. This is figured out a the beginning of the year and if the cost is less than they figured they send the difference back. Nice.