What is a negatively amortized loan also known as?

A negatively amortized loan is often referred to as a graduated mortgage payment because it involves a structure where the payments made during the early years of the loan are less than the interest accrued. As a result, the unpaid interest is added to the principal balance, leading to a situation where the total debt increases over time instead of decreasing.

In some arrangements, such as a graduated payment mortgage, the payments start lower and gradually increase over time, which can reflect a similar concept. Thus, the term graduated mortgage payment aligns well with the definition of negative amortization.

This type of loan enables borrowers to have lower initial payments, which can be appealing, but it also poses risks as the loan balance can grow beyond the original amount borrowed, creating potential repayment challenges in the future.