How to use the negative amortization schedule calculator
- Enter the starting balance, the yearly interest rate, the monthly payment you plan to make and the loan term in months.
- Enter a balance cap as a percent of the starting balance, or clear the box for no cap. When the balance reaches the cap, the payment is reset.
- Read the highest balance, the month the cap is reached and the reset payment.
- Use the table to follow the balance by year and at the key months, or download every month as a CSV.
Formula
interest each month = balance x yearly rate / 12
new balance = balance + interest - payment
balance after m months = B0 x (1 + i)^m - payment x ((1 + i)^m - 1) / i
reset payment = balance x i / (1 - (1 + i)^-n), n = months left
Here i is the yearly rate divided by 12. The closed form for the balance holds while the payment stays the same. At the cap, the balance is amortized over the months left.
A $300,000 loan with a payment below the interest
The balance is $300,000 at 6 percent for 360 months, and the payment is $1,200. Interest in the first month is $300,000 x 0.005 = $1,500, so $300 is added to the balance. After 12 months the balance is $303,700.67.
With a cap of 115 percent, or $345,000, the balance first passes the cap in month 113 at $345,418.35. The payment is reset to the level payment that clears that balance over the remaining 247 months, which is $2,438.47. Total interest over the life of the loan is $437,901.86. With no cap and the same $1,200 payment, the balance would be $601,354.51 after 360 months.
Why the balance can grow
Negative amortization happens when a payment is smaller than the interest charged for the month. The unpaid interest is added to the balance, and the next month’s interest is charged on the larger balance. The gap widens each month, so a small shortfall compounds into a large one over years.
Some loans limit this with a cap on the balance or a fixed date at which the payment is reset. After the reset, the payment has to be higher than before because fewer months remain to repay a bigger balance.
Comparing with other payment plans
Paying exactly the interest keeps the balance flat, as in the Interest-Only Loan Calculator. Paying the full level payment clears the loan on time, as in the Amortization Schedule Calculator. Use the Loan Payment Sensitivity Table to see how much the full payment changes with the rate and the term.
Assumptions and limits
- The rate is fixed and interest is charged monthly at one twelfth of the yearly rate.
- The payment is the same every month until the balance reaches the cap.
- At the cap, the balance is paid off with level payments over the months that remain.
- Fees, insurance, taxes and rounding of real statements are not included.
- The balance, rate, payment, term and cap shown when the page opens are examples.
Frequently asked questions
What happens if my payment is larger than the interest?
Then the loan is not negatively amortizing. The balance falls, and the page shows the total interest instead of a highest balance.
What if I do not set a cap?
With the cap cleared, the payment never resets. The balance keeps growing for as long as the payment is below the interest, and the table shows the balance owed at the end of the term.
Why is the reset payment so much higher?
It must repay a larger balance in fewer months. In the example, $345,418.35 is repaid over 247 months, which needs $2,438.47 a month, about double the $1,200 paid before.
Is the closed form the same as the monthly table?
Yes, up to rounding. The page uses the monthly steps, and the test suite checks that they match the closed form for the balance before any reset.