Question:

What is accrued interest on loan?

Answer:

Generally, accrued interest on loan will be any interest due on the principal of the loan. Generally, interest accrues on a daily basis, since the last interest payment has been made.

If accrued interest is added to the principal of a mortgage, we might be talking about negative amortization. This means that the borrower is making minimum payments that fall below an interest only payment. Any outstanding part of the interest will be added to the principal.

When selling your property, you have to be sure the buyer’s offer covers principal and all accrued interest. When refinancing, both accrued interest on the old and the new mortgage have to be taken into consideration.

When accrued interest on a home loan refers to negative amortization and some interest due is added to the principal, it will start accruing additional interest. Be careful with that since negative amortization loans may be hazardous and one should be, firstly, well versed in home loan specifics and, secondly, aware of some additional risks when signing for a neg am home loan.

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