California NMLS Practice Power-Up 2026 – Master Your Mortgage Mojo!

The type of loan described is a negative amortization loan. This is a specific kind of mortgage where the scheduled payments are not sufficient to cover the interest that is accruing over time. As a result, the unpaid interest is added to the principal balance of the loan, causing it to increase instead of decrease.

In contrast to a fixed-rate buydown, which involves paying an upfront fee to lower the interest rate for the duration of the loan, or home equity conversion mortgages, which are designed for seniors to leverage home equity, a negative amortization loan specifically allows for smaller payments that do not cover all interest, leading to a rise in the total amount owed. A home equity line of credit (HELOC) also differs; it typically involves a revolving line of credit with flexible withdrawals and payments, which can include options to pay only the interest during the draw period, but it is not characterized by the incomplete payment structure that defines negative amortization loans.