Reverse Amortization Calculator

Calculate Reverse Amortization
Are you looking for a reverse amortization calculator? You're in the right place! Use this free reverse amortization calculator to calculate reverse (or negative) amortization. Enter the interest rate, starting loan balance, and number of years to calculate in the fields below. Click 'Next' to continue.
Annual interest rate:
Starting loan balance:
Number of years to calculate:
Looking for a reverse mortgage calculator? Check out our HECM reverse mortgage calculator.

How to use the reverse amortization calculator

Our reverse amortization calculator is very easy to use. Simply enter the interest rate, the starting loan balance, and the number of years to amortize, then click the “Calculate” button. The next page will display the amortization schedule, which shows how the loan balance will change over time. You can also return to this page to adjust the input values and recalculate the figures. 

What is reverse (or “negative”) amortization?

Reverse (or “negative”) amortization is a type of loan amortization where the monthly payments don’t cover the accrued interest. Any unpaid interest is added to the loan balance, which causes it to increase over time. Mortgage products such as pay-option ARMs, graduated payment mortgages, and reverse mortgages typically utilize negative amortization. 

The Pay-Option Adjustable-Rate Mortgage (ARM)

Many people have a bad impression of reverse amortization because of the risky pay-option ARMs (also known as “pick-a-pay” loans) that were available prior to the 2008 financial crisis. Pay-option ARMs gave borrowers multiple payment options to choose from, including a low minimum payment that didn’t cover all of the interest. The unpaid interest was added to the loan balance, which caused it to increase over time.

There’s nothing inherently wrong with negative amortization as long as borrowers are fully informed and it comes with some basic safeguards. Pay-option ARMs were originally intended for savvy business owners who wanted additional cash flow management options. Unfortunately, many home buyers were attracted to the low minimum payments and used them to “afford” homes that were otherwise unaffordable.

When home values fell during the Great Recession, many homeowners with pay option ARMs owed more than their homes were worth. This was a big problem because pay-option ARMs were full recourse loans. This meant the homeowner was on the hook for the shortage if their home didn’t sell for enough to pay off the entire loan balance. Many homeowners with pay-option ARMs found themselves tens of thousands of dollars underwater on their mortgages with no means to settle up the shortage.

The fatal flaw of the pay-option ARM was that it was full recourse. Unfortunately, many borrowers got into pay-option ARMs without fully understanding what they were getting into. 

Graduated Payment Mortgage (GPM)

Some graduated payment mortgages also use negative amortization.  Graduated payment mortgages have low starting payments that don’t cover all of the interest. The unpaid interest is added to the loan balance, which causes it to increase over time. As the years pass, the payments gradually increase to cover all of the interest, then both principal and interest so the loan pays off in full at the end of the loan term.

Graduated payment mortgages are intended to help people more easily become homeowners. The payments start off low to help people get into the home, then gradually increase as the borrower’s income increases. Obviously, there are no guarantees that a borrower’s income will increase. If it does, a graduated payment mortgage can work out well. However, if it doesn’t increase, than a graduated payment mortgage can be a foreclosure waiting to happen. 

Home Equity Conversion Mortgage (HECM)

The most common negative amortization mortgage in the United States is the reverse mortgage. The most popular reverse mortgage is the FHA-insured home equity conversion mortgage, or HECM (often pronounced heck-um by industry insiders). The HECM enables homeowners 62 and over to access a portion of their home’s equity without giving up ownership of the home or taking on a mortgage payment.

No mortgage payments are required as long as at least one borrower (or non-borrowing spouse) lives in the home, maintains it, and pays the required property charges.

You always remain the owner of your home and you’re free to leave it to your heirs. Your heirs can inherit any equity remaining in the home.

The HECM is a non-recourse loan, which is what sets it apart from riskier negative amortization loans like the pay-option ARM and the graduated payment mortgage. means the most that will ever have to be repaid is the value of the home. FHA covers the shortage if your home isn’t worth enough to pay off the entire balance.

If you’re interested in finding out how much you may be able to get from a reverse mortgage, check out our free reverse mortgage calculator.