Negative Amortization

The system does not allow you to use a periodic payment amount that is less than the periodic interest amount. If it did, the customer's payoff balance would increase over time (this is referred to as "negative amortization"). There are two methods you can use to specify a payment amount in the system. Depending on which method you use, the system informs you of negative amortization differently:

• If you enter a payment amount that is too small on the Start confirmation page or in the Renegotiate Future Payments grid on Loan maintenance, you get an error message when you click the Calculate button. You must fix the payment amount before you can start the loan or save your changes.
• If you manually override the Payment Amount on Loan maintenance, you can save a payment amount that is too small to cover the interest charges. However, the system notifies you that it is not able to calculate the Forecasted Schedule because of negative amortization. Additionally, bill segments for the loan SA are produced in error until the payment amount is adjusted appropriately.