DEFINITION of 'Interest Shortfall'

Any interest that has not been paid after the loan payments have been paid. An interest shortfall occurs when the loan accrues interest that has not been figured into the actual immediate payment. Adjustable-rate mortgages have interest shortfalls if their payments or interest rates are capped, leading to negative amortization.

BREAKING DOWN 'Interest Shortfall'

An interest shortfall can be a serious matter for homeowners who do not want their loans to go into negative amortization, and an extra mortgage payment or two may be necessary in order to prevent this. Most mortgages have limits on the amount of interest shortfall they can accept as protection for both borrower and lender.

RELATED TERMS
  1. Shortfall

    The amount by which a financial obligation or liability exceeds ...
  2. Deferred Interest Mortgage

    A mortgage loan that allows the borrower to make minimum payments ...
  3. Accelerated Amortization

    Extra payments made towards paying down a mortgage principal. ...
  4. Fully Amortizing Payment

    A periodic loan payment, part of which is principal and part ...
  5. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  6. Amortized Loan

    A loan with scheduled periodic payments of both principal and ...
Related Articles
  1. Investing

    Fiscal Deficit

    A shortfall that occurs when government spending exceeds government revenues, or taxes.
  2. Personal Finance

    Mortgage Amortization Strategies

    Should you get a 30-year mortgage? A 15-year one? Ways to decide which mortgage is the best fit.
  3. Personal Finance

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  4. Personal Finance

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  5. Personal Finance

    Choose Your Monthly Mortgage Payments

    Exotic mortgages allow you to decide how much to pay. Find out how much they really cost.
  6. Personal Finance

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  7. Personal Finance

    What is an Amortization Schedule?

    An amortization schedule is a table that shows the amounts of principal and interest that comprise each loan payment.
  8. Personal Finance

    The Best Mortgage Deal (May Not Be What You Think)

    Don't judge a mortgage solely by payment amount. Here's what insiders know about choosing the most advantageous mortgage offer.
  9. Personal Finance

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    Interest on variable interest rate loans vary as market interest rates change. Interest on fixed interest rate loans will ... Read Answer >>
  2. When Do Mortgage Payments Usually Start?

    Discover when your first mortgage payment is due and how it differs from rent. Learn about the closing process and why you ... Read Answer >>
  3. Are Student Loans Amortized?

    Student loans typically get paid back over time on a fixed payment, or amortized, schedule. Read Answer >>
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center