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.

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