Deferred Interest Financial Glossary

What is it? Interest is deferred on an ARM when a minimum monthly payment is not large enough to pay all the interest that has accrued on the loan for that period. The unpaid interest is added to the outstanding principal balance to be repaid over the remaining life of the loan. To avoid deferred interest, a borrower sometimes has the option of making a larger payment that includes what would otherwise become deferred interest.

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