How the mechanics work
When rates rise, more of your fixed payment goes toward interest and less toward principal. If rates rise enough, the interest portion can exceed your total payment, meaning your balance actually grows instead of shrinking.
Why lenders allow this structure
Fixed payment mortgages give borrowers payment stability and predictability, which many people value for budgeting purposes. The tradeoff is that your actual amortization length becomes less predictable when rates move significantly.
Signs your amortization is extending
Your annual mortgage statement should show your current amortization schedule. If it's noticeably longer than when you started, or your lender has reached out about your payment, it's worth addressing sooner rather than later.
- Check your annual mortgage statement for amortization length
- Watch for any lender correspondence about payment adjustments
- Ask your broker to review your current position annually
Steps to bring it back on track
Making lump sum prepayments, increasing your regular payment voluntarily, or switching to a fixed rate mortgage are all ways to correct extended amortization before it becomes a bigger issue at renewal.
Frequently asked questions
- Is negative amortization common?
- It became more common during periods of rapid rate increases, particularly for those who took fixed payment variable mortgages near the peak of previous low rate periods.
- Will my lender contact me if this happens?
- Most lenders do reach out once you approach or hit your trigger point, but it's smart to monitor your own statements rather than waiting.
- Can I switch lenders to fix this issue?
- Yes, though switching may involve fees or a new rate, so it's worth comparing the cost of switching against staying and adjusting your payments.