Interest Shortfall

  

Categories: Bonds, Banking

Your uncle starts droning on about a steak he ate in 1984. Trying to be nice, you make an attempt to listen, but you undergo something close to an out-of-body experience. Your mind totally detaches, and suddenly you can't hear him at all...just an incessant buzzing in your ears as your spirit slowing drifts away. Interest shortfall.

There's also a finance-related connotation for the term "interest shortfall," though.

You have an adjustable-rate mortgage. That structure means that the amount you owe can change based on fluctuations in overall interest rates. Your mortgage contract has a limit on how much your monthly payment can change when interest rates re-adjust. However, the rates themselves can alter more than the monthly payment.

At some point during your loan, interest rates skyrocket. The monthly payment, protected by the caps, only moves a relatively small amount. But the rates themselves have moved much more dramatically. As a result, there's a certain amount of interest not covered by your monthly mortgage bill. Essentially, your payment is too low to pay back the loan completely, at least as it now stands.

This situation constitutes an interest shortfall. Your payments are too small to cover all the interest you owe. In other words...there's a shortfall.

The additional interest payments are added to the principal of the loan, essentially extending the period of time it will take you to pay off the mortgage. The situation caused by the interest shortfall is known as negative amortization.

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Finance allah shmoop What is a crude interest A crude

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interest would be an investment holding in oil Black crude

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texas t remember jed boy Howdy coming Listen to a

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on june thirtieth in december thirty first Well think about

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into the eighty dollars a year or eighty dollars per

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