Deferred Interest Mortgage

DEFINITION of 'Deferred Interest Mortgage'

A mortgage loan that allows the borrower to make minimum payments that are less than the entire amount of interest owed. The remaining interest is added to the amount of loan to be paid off. This is considered to be a negative amortization. The homeowner will let interest accrue, and will ultimately owe more than the original value of the loan. An adjustable rate mortgage (ARM) might offer this sort of payment structure.

BREAKING DOWN 'Deferred Interest Mortgage'

By making minimum payments that do not cover the loan principal, the balance on the loan is unlikely to get smaller since the interest is calculated on the outstanding principal. While low minimum payments do give the borrower payment flexibility, homeowners might not fully understand how complex this sort of mortgage can be.

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