What type of mortgage typically results in negative amortization?

The type of mortgage that typically results in negative amortization is the adjustable-rate mortgage (ARM). In an ARM, the interest rate can change periodically based on changes in a corresponding financial index that is associated with the loan. When the interest rate increases and the borrower's payment remains the same or doesn't cover the accrued interest, the unpaid interest gets added to the loan balance, leading to negative amortization. This means that instead of the principal balance decreasing over time, it actually increases.

Adjustable-rate mortgages often have features that can result in lower initial payments, such as interest-only payment options during certain periods. If the payments during those periods do not cover the full interest accruing, the borrower may find themselves in a situation where they owe more than they originally borrowed after the adjustment periods. Therefore, this characteristic distinctly aligns ARMs with the potential for negative amortization, highlighting the risks associated with them compared to other types of mortgages.