2 min read
Definition
Negative amortisation occurs when the agreed payment does not even cover the interest due, so the shortfall is capitalised and the balance rises. It can arise on deferred-payment structures or when a variable rate climbs above the level a fixed payment was set for. Left unchecked, the debt spirals.
In plain terms
It is the danger zone: you make payments, yet you owe more each month because they do not keep up with the interest.
Why it matters for your company
Watch for negative amortisation if rates rise on a fixed-payment loan — raise the payment or restructure early. See interest capitalisation and how to manage repayments when rates rise.
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