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Negative amortization

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Definition of Negative amortization

Negative Amortization Image 1

Negative amortization

A loan repayment schedule in which the outstanding principal balance of the loan
increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount
required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.



Related Terms:

Amortization

The repayment of a loan by installments.


Amortization

See depreciation, but usually in relation to assets attached to leased property.


amortization

This term has two quite different meanings. First, it may
refer to the allocation to expense each period of the total cost of an
intangible asset (such as the cost of a patent purchased from the inventor)
over its useful economic life. In this sense amortization is equivalent
to depreciation, which allocates the cost of a tangible long-term operating
asset (such as a machine) over its useful economic life. Second, amortization
may refer to the gradual paydown of the principal amount of a debt.
Principal refers to the amount borrowed that has to be paid back to the
lender as opposed to interest that has to be paid for use of the principal.
Each period, a business may pay interest and also make a payment on
the principal of the loan, which reduces the principal amount of the loan,
of course. In this situation the loan is amortized, or gradually paid down.


Amortization

Reduction in value of an asset over some period for accounting
purposes. Generally used with intangible assets. Depreciation is the term used
with fixed or tangible assets.


Amortization

The write-off of an asset over the period when the asset is used. This term
is most commonly applied to the gradual write-down of intangible items, such as
goodwill or organizational costs.



Amortization

The systematic and rational allocation of capitalized costs over their useful lives.
Refer also to depreciation and depletion.


Amortization

The reduction of debt by regular payments of interest and principal sufficient to pay off a loan by maturity.


Negative Amortization Image 2

amortization

The repayment of a loan by installments.


Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.


Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.


Amortization Schedule

A schedule that shows precisely how a loan will be repaid. The schedule gives the required payment on each specific date and shows how much of it constitutes interest and how much constitutes repayments of principal.


Average Amortization Period

The average useful life of a company's collective amortizable asset base.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


Extended Amortization Period

An amortization period that continues beyond a long-lived asset's economic useful life.


Extended Amortization Periods

Amortizing capitalized expenditures over estimated useful lives that are unduly optimistic.


Loan amortization schedule

The schedule for repaying the interest and principal on a loan.


Negative carry

Related: net financing cost



negative cash flow

The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.


Negative convexity

A bond characteristic such that the price appreciation will be less than the price
depreciation for a large change in yield of a given number of basis points.


Negative covenant

A bond covenant that limits or prohibits altogether certain actions unless the bondholders agree.


Negative duration

A situation in which the price of the MBS moves in the same direction as interest rates.


Negative goodwill

A term used to describe a situation in which a business combination
results in the fair market value of all assets purchased being more than the purchase
price.


Negative Loan Covenants

Loan covenants designed to limit a corporate borrower's behavior
in favor of the lender.


Negative pledge clause

A bond covenant that requires the borrower to grant lenders a lien equivalent to any
liens that may be granted in the future to any other currently unsecured lenders.


Planned amortization class CMO

1) One class of CMO that carries the most stable cash flows and the
lowest prepayement risk of any class of CMO. Because of that stable cash flow, it is considered the least risky CMO.
2) A CMO bond class that stipulates cash-flow contributions to a sinking fund. With the PAC,
principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined
payment schedule, with prior claim to the cash flows before other CMO classes. Similarly, cash flows
received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The
prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience.



 

 

 

 

 

 

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