Negative Amortization Limit  Dictionary Says  Definition of
'Negative Amortization Limit'  A provision in certain loan
contracts that limits the amount of negative amortization that
can take place. A loan negatively amortizes when scheduled
payments are made that are less than the interest charge due on
the loan at the time. When a payment is made that is less than
the interest charge due, deferred interest is created and added
to the loan's principal balance, creating negative amortization.
A negative amortization limit states that the principal balance
of a loan cannot exceed a certain amount, usually designated as
a percentage of the original loan balance. Investopedia Says
Investopedia explains 'Negative Amortization Limit'  When a
negative amortization limit is reached on a loan, a recasting of
the loan's payments is triggered so that a new amortization
schedule is established and the loan will be paid off by the end
of its term. A negative amortization limit prevents a loan's
principal balance from bec