An adjustable-rate mortgage can offer a lower initial payment than some fixed-rate alternatives, but Florida homebuyers need to understand exactly what happens when the required payment does not cover all of the interest accruing on the loan.

That situation can create negative amortization.

Negative amortization occurs when a borrower's payment is insufficient to cover the interest charged for the period, causing unpaid interest to be added to the mortgage balance. Instead of the principal declining, the amount owed can increase even while the borrower is making payments. The Consumer Financial Protection Bureau (CFPB) identifies this as a risky mortgage feature because a borrower can potentially owe more than the home is worth. 

For Florida buyers, this distinction matters when comparing adjustable-rate mortgages, especially loans with unusual payment structures, payment caps, or minimum-payment options.

A low initial payment does not necessarily mean a low-cost mortgage.

The more important question is:

Does the payment fully cover the interest being charged?

If it does not, the unpaid interest may be added to the loan balance.

What Is Negative Amortization?

Normal mortgage amortization gradually reduces the outstanding principal.

For example, a borrower may start with:

Mortgage balance: $500,000

After making scheduled principal-and-interest payments, the balance should gradually decline.

With negative amortization, the opposite can happen.

Suppose the loan accrues:

$2,500 of interest

but the required payment covers only:

$2,000

The unpaid:

$500

could be added to the mortgage balance.

The new balance could therefore become:

$500,500

before considering other applicable charges or payments.

The CFPB defines negative amortization as a situation where the amount owed increases because the payment is not sufficient to cover the interest due. 

This is fundamentally different from simply having an adjustable interest rate.

An ARM is not automatically a negative-amortization loan.

Negative amortization is a specific feature that depends on how the loan's payment and interest calculations are structured.

Why Can an ARM Create Negative Amortization?

An ARM can create negative amortization when the required payment is limited or otherwise structured below the amount of interest accruing on the mortgage.

One example is a loan with a payment cap.

Imagine:

Interest due: $2,800

Required payment: $2,300

The payment does not cover the full interest charge.

The remaining:

$500

could be added to the principal balance under the loan's terms.

The CFPB specifically warns that if an ARM's interest rate increases but the payment does not increase enough to cover the interest, the loan balance can increase. 

That is the central risk Florida borrowers need to understand.

Negative Amortization vs Regular ARM Adjustment

These concepts should not be confused.

A conventional fully amortizing ARM can have:

Variable interest rate

while still requiring a payment sufficient to cover interest and principal.

The rate may rise or fall, but the loan continues to amortize.

A negative-amortization ARM is different because the payment structure can allow:

Payment < Interest Due

When that happens:

Unpaid Interest → Added to Loan Balance

This can cause:

Higher Principal → More Interest Charged → Larger Future Payment Requirement

The CFPB describes negative amortization as a situation where unpaid interest is added to the amount borrowed. 

The First Warning Sign: A Minimum Payment Below the Interest Due

Florida buyers should pay close attention if an ARM offers a minimum payment option.

A minimum payment can look attractive because it may produce a lower monthly obligation.

But the borrower needs to ask:

"Does this payment cover all of the interest accruing on the loan?"

If the answer is no, the difference can potentially be added to the balance.

The CFPB specifically identifies payment options that allow borrowers to make a minimum payment that does not cover all accrued interest as a negative-amortization risk. 

A lower payment is therefore not necessarily a lower borrowing cost.

The Second Warning Sign: Payment Caps

A payment cap limits how quickly the required payment can increase.

At first glance, that may sound beneficial.

But consider a scenario where:

Interest rate rises

Interest owed increases

Payment is restricted by a cap

If the payment cannot rise enough to cover the interest, the unpaid portion can be added to the mortgage balance.

For example:

Interest owed: $3,000

Payment required under payment cap: $2,500

Potential unpaid interest:

$500

If the loan permits negative amortization, that $500 can be added to the principal.

The CFPB notes that negative amortization can occur when a payment cap causes the monthly payment to be insufficient to cover interest due. 

This is why Florida buyers should analyze payment caps and rate caps separately.

Rate Caps Do Not Prevent Negative Amortization

This is an important distinction.

A rate cap limits how much the interest rate can change.

A payment cap limits how much the required payment can change.

They are not the same.

For example:

Previous rate: 5.50%

New calculated rate: 7.50%

Rate cap: 2%

The rate adjustment may be permitted.

But if the payment is separately restricted, the payment may not increase enough to fully amortize the loan.

The CFPB explains that rate caps control interest-rate adjustments, while payment structures can operate differently. 

A Florida buyer should therefore ask:

"If my interest rate increases, will my payment automatically increase enough to cover all accrued interest?"

That question can reveal a major difference between ARM products.

The Third Warning Sign: The Loan Balance Can Increase

The most direct warning sign is language indicating that the:

Loan balance may increase after closing

The CFPB advises borrowers to check whether their loan balance can increase even while they are making payments. 

This feature should receive careful attention before signing.

A standard amortizing mortgage is designed to reduce the balance over time.

A negative-amortization feature can do the opposite under certain payment scenarios.

The Fourth Warning Sign: A "Minimum Payment" Is Advertised

A minimum payment is not necessarily the same thing as a fully amortizing payment.

For example, a loan might allow several payment options:

Minimum payment

Interest-only payment

Fully amortizing payment

The minimum payment could be the lowest monthly obligation but also the payment most likely to create negative amortization if it does not cover all accrued interest.

The OCC's residential lending guidance describes payment-option ARMs in which a minimum payment can be lower than the interest accruing on the loan, potentially producing negative amortization. (OCC.gov)

Florida buyers should therefore ask the lender to explain every available payment option.

Interest-Only Is Not Automatically Negative Amortization

Another common misconception is that:

Interest-only = negative amortization

That is not necessarily true.

An interest-only payment can cover the full interest due while paying:

$0 toward principal

The loan balance remains approximately unchanged rather than increasing from unpaid interest.

Negative amortization occurs when the payment does not cover the full interest obligation and unpaid interest is added to the balance.

The CFPB distinguishes interest-only features from negative-amortization features in mortgage disclosures. 

So Florida buyers should distinguish:

Interest-only

from:

Negative amortization

They create different risks.

The Fifth Warning Sign: A Large Payment Recast

Negative amortization generally cannot continue indefinitely under a loan's terms.

The loan may have a:

Negative amortization cap

or a scheduled point at which the payment must be recalculated.

When that happens, the borrower may be required to make a substantially larger payment designed to amortize the increased balance over the remaining term.

The OCC explains that payment-option ARM payments can be recast after a specified period or when a negative-amortization cap is reached, with payments then structured to fully amortize the loan by maturity. (OCC.gov)

This can create significant payment shock.

What Is a Negative-Amortization Cap?

A negative-amortization cap limits how much the principal balance can increase because of deferred interest under the loan's terms.

For example, a hypothetical mortgage might permit the balance to increase to:

110% of the original principal balance

before requiring a payment recast.

Suppose the original loan amount was:

$500,000

A 110% cap would correspond to:

$550,000

The actual contract determines the applicable threshold and what happens when it is reached.

The cap should therefore be viewed as a warning threshold, not as a safe target.

Allowing the balance to grow significantly can increase the amount of debt secured by the property.

Why a Higher Loan Balance Matters in Florida

Florida homeowners should consider negative amortization in the context of their broader financial position.

Suppose a buyer purchases a property for:

$600,000

with a:

$500,000 mortgage

If negative amortization increases the balance to:

$525,000

the homeowner has less equity than would have existed under a normally amortizing structure, all else equal.

If property values also decline, the combination can become more difficult.

For example:

Home value: $500,000

Mortgage balance: $525,000

The borrower could owe more than the property is worth.

The CFPB warns that negative amortization can create this type of situation and make selling the property more difficult because the sale proceeds may not cover the mortgage balance. 

Florida Buyers Should Not Rely on Appreciation

One of the riskiest assumptions is:

"The property will appreciate, so a growing mortgage balance won't matter."

Future property appreciation is uncertain.

Florida housing markets can differ substantially by:

• Metro area
• Neighborhood
• Property type
• Insurance costs
• Local employment conditions
• Inventory
• Buyer demand
• Economic conditions

A mortgage strategy should therefore work based on the borrower's ability to repay the debt—not on a guaranteed increase in property value.

Negative Amortization and Home Equity

Equity is generally the difference between:

Property value − Mortgage debt

If the property value remains constant while the mortgage balance increases, equity declines.

Example:

Normal Amortization

Home value:

$600,000

Mortgage:

$500,000

Equity:

$100,000

After Negative Amortization

Home value:

$600,000

Mortgage:

$525,000

Equity:

$75,000

The homeowner has lost $25,000 of equity from the increase in mortgage debt, assuming no other changes.

If the property value falls at the same time, the effect can be more significant.

The Sixth Warning Sign: The Initial Payment Looks Unusually Low

An unusually low payment deserves closer inspection.

A Florida buyer should ask:

Why is this payment lower?

Possible explanations include:

• Lower introductory interest rate
• Interest-only structure
• Payment-option structure
• Negative amortization
• Longer amortization
• Temporary payment subsidy
• Other loan-specific features

Not every low payment is problematic.

But the reason behind the low payment matters.

The CFPB advises consumers to examine special loan features rather than judging the mortgage solely by the initial payment. 

The Seventh Warning Sign: The Fully Indexed Rate Is Much Higher

The initial ARM rate can be lower than the fully indexed rate.

The fully indexed rate is generally:

Index + Margin

The CFPB explains that once an ARM's initial teaser rate expires, the index and margin are added together to determine the new rate, subject to applicable caps. 

For example:

Initial rate: 5.00%

Index: 5.00%

Margin: 2.50%

Fully indexed rate:

7.50%

That does not mean the borrower will automatically move to 7.50%.

Caps and other provisions matter.

But the difference should trigger an important question:

"Can my payment cover the interest if my rate moves toward the fully indexed rate?"

A Florida Negative-Amortization Example

Consider a hypothetical ARM:

Original loan: $500,000

Initial rate: 5.00%

Fully indexed rate after adjustment: 7.50%

Minimum payment: Limited under the loan's payment structure

Suppose the loan's interest obligation at a particular point is:

$3,125 per month

but the permitted minimum payment is:

$2,500

The difference is:

$625

If the loan permits negative amortization, that unpaid $625 can be added to the mortgage balance.

The balance therefore increases rather than declines.

This is a simplified illustration. Actual mortgage calculations depend on the loan's exact interest-accrual method, payment rules, timing, and contractual provisions.

How Repeated Negative Amortization Can Compound Risk

One month of unpaid interest may appear manageable.

The problem becomes more serious if the pattern continues.

Imagine:

Month 1: +$500 balance

Month 2: +$550 balance

Month 3: +$600 balance

Over time, the outstanding principal can grow substantially.

As the balance increases, future interest can be calculated on a larger principal amount, depending on the loan structure.

The CFPB warns that borrowers can end up paying interest on interest when unpaid interest is added to principal. 

That can materially increase the total cost of borrowing.

The Eighth Warning Sign: A Payment Recast You Have Not Budgeted For

A negative-amortization loan may eventually require a fully amortizing payment.

That payment can be significantly higher than the original minimum payment because the borrower may now have:

Higher principal balance

Higher interest rate

Shorter remaining amortization period

all at the same time.

For example, a borrower might start with:

$2,500 minimum payment

but later face:

$3,800 fully amortizing payment

depending on the loan's balance, interest rate, remaining term, and contractual rules.

Florida buyers should ask the lender to provide projected payments after any scheduled or potential recast.

The Ninth Warning Sign: "You Can Always Refinance"

A risky ARM strategy sometimes depends on a future refinance.

That can be dangerous.

A refinance is not guaranteed.

Future eligibility may depend on:

• Credit
• Income
• Debt-to-income ratio
• Property value
• Equity
• Interest rates
• Employment
• Loan program requirements
• Market conditions

A borrower should be able to afford the existing mortgage even if refinancing is unavailable.

The CFPB advises consumers to evaluate whether they can afford the maximum possible payment rather than relying solely on expectations about future rates or refinancing. 

The Tenth Warning Sign: You Cannot Explain the Payment Formula

If a lender presents an ARM and the borrower cannot explain:

How the interest rate changes

How the payment changes

When the payment changes

When the loan recasts

Whether unpaid interest can be added to principal

then the borrower should stop and ask for clarification.

A mortgage is a long-term financial commitment.

The borrower should understand the mechanics before closing.

How to Identify Negative Amortization on a Loan Estimate

The Loan Estimate provides an important first checkpoint.

The CFPB states that the Loan Estimate identifies special loan features, including whether the loan has a negative-amortization feature that could increase the mortgage balance even when payments are made on time. 

Florida buyers should review the loan product description carefully.

Look for:

Adjustable Rate

Negative Amortization

Interest Only

Payment Increase

Prepayment Penalty

Balloon Payment

These disclosures can identify features that require additional attention.

Ask for a Loan Estimate Without the Risky Feature

If a proposed mortgage contains a negative-amortization feature, ask the lender for a comparable Loan Estimate without that feature.

The CFPB specifically recommends asking for another Loan Estimate without a risky feature so the borrower can compare the costs and benefits of a less risky structure. 

For example, compare:

Option A

ARM with negative amortization

Option B

Fully amortizing ARM

Option C

Fixed-rate mortgage

Then compare:

• Initial payment
• Future payment
• Interest rate
• Closing costs
• Total interest
• Maximum payment
• Maximum balance
• Prepayment terms
• Long-term risk

The lowest initial payment should not automatically win.

Negative Amortization vs Deferred Principal

Some borrowers confuse negative amortization with simply postponing principal repayment.

They are different.

Interest-Only

The borrower pays the interest due but no principal.

Balance generally remains unchanged.

Negative Amortization

The borrower does not pay all accrued interest.

Unpaid interest may be added to the principal.

Balance increases.

Fully Amortizing

The payment covers interest and some principal.

Balance declines.

Understanding these three structures is essential when comparing ARM options.

How Rate Changes Can Trigger Negative Amortization

Consider a hypothetical ARM with:

Initial rate: 5%

Payment: $2,500

The payment may initially cover the interest and some principal.

Then the ARM resets:

New rate: 7.5%

The interest obligation rises.

If the payment structure does not increase sufficiently, the borrower could eventually pay less than the interest accruing.

That is when negative amortization becomes possible.

The CFPB specifically advises borrowers to determine whether the payment is recalculated when the interest rate changes. 

What Florida Buyers Should Ask About Rate Caps

Rate caps are important, but they do not necessarily eliminate negative-amortization risk.

The CFPB identifies three common ARM caps:

1. Initial adjustment cap
2. Subsequent adjustment cap
3. Lifetime adjustment cap 

A buyer should ask:

"If my interest rate rises to the maximum allowed under the cap, will my required payment still cover all accrued interest?"

That question connects the rate structure with the payment structure.

Maximum Rate vs Maximum Payment

These are separate numbers.

A mortgage can have a:

Maximum interest rate

and a:

Maximum monthly payment

The borrower should know both.

The CFPB recommends asking the lender to calculate the highest payment that could apply under the ARM. 

For Florida buyers, a useful stress test is:

Initial payment

Payment at +1%

Payment at +2%

Payment at maximum rate

Payment after recast

This can reveal whether the mortgage remains affordable under unfavorable conditions.

How Negative Amortization Affects Refinancing

Suppose a borrower starts with:

$500,000 mortgage

and the balance eventually rises to:

$540,000

If the property value is:

$550,000

the borrower's equity is only:

$10,000

That may make a future refinance more difficult than expected.

The borrower could also face:

• Higher loan-to-value ratio
• Higher closing costs
• Fewer refinance options
• Greater exposure to property-value declines

Negative amortization therefore can affect not only the current payment but also future financial flexibility.

How Negative Amortization Affects Selling

The same issue applies to selling.

Suppose:

Property sells for: $525,000

Mortgage balance: $540,000

The sale proceeds would not fully cover the mortgage balance before considering selling costs and other transaction expenses.

That creates a potential shortfall.

The CFPB warns that negative amortization can make selling more difficult when the mortgage balance exceeds the property's value. 

A Florida buyer should therefore consider whether the mortgage structure could leave the borrower with insufficient equity.

Florida Property Insurance Makes Payment Planning Important

Florida homeowners should also consider the full housing payment rather than evaluating principal and interest alone.

The monthly housing cost can include:

• Principal
• Interest
• Property taxes
• Homeowners insurance
• Flood insurance, when applicable
• HOA or condominium assessments
• Other applicable housing expenses

An ARM payment increase can therefore arrive on top of other housing-cost changes.

A mortgage that appears affordable based only on the initial principal-and-interest payment may be less comfortable once the full housing budget is considered.

Negative Amortization Is Not a Florida-Specific Feature

There is no special rule that makes negative amortization unique to Florida.

The feature is determined by the mortgage product and its contractual terms, along with applicable federal requirements.

However, Florida buyers should consider the feature within their own financial circumstances and housing costs.

The important questions remain:

Can the balance increase?

Can unpaid interest be capitalized?

When does the loan recast?

What will the payment become?

Can I afford that payment without refinancing?

A Practical Negative-Amortization Risk Checklist

Before closing on an ARM, Florida buyers should identify:

Interest Rate

• Initial interest rate
• Index
• Margin
• Fully indexed rate
• Rate-adjustment schedule

Payment

• Initial payment
• Minimum payment
• Fully amortizing payment
• Payment cap
• Payment-adjustment schedule

Balance

• Can the principal increase?
• Can unpaid interest be added to principal?
• Is there a negative-amortization cap?
• What happens when the cap is reached?

Future Risk

• Maximum interest rate
• Maximum payment
• Recast date
• Remaining amortization period after recast
• Refinance assumptions
• Selling assumptions

If any of these items are unclear, ask the lender to explain them before signing.

Questions Florida Buyers Should Ask Their Mortgage Lender

Before choosing an ARM, ask:

1. Can my loan balance increase after closing?
2. Can unpaid interest be added to my principal?
3. Does this ARM have a negative-amortization feature?
4. What is the minimum monthly payment?
5. Does the minimum payment cover all accrued interest?
6. What happens if my interest rate increases?
7. Will my payment automatically increase when the interest rate increases?
8. Is there a payment cap?
9. Is there a rate cap?
10. What is the initial rate cap?
11. What is the periodic rate cap?
12. What is the lifetime rate cap?
13. Is there a rate floor?
14. What is the maximum possible interest rate?
15. What is the maximum possible monthly payment?
16. Is there a negative-amortization cap?
17. What percentage of the original balance can the loan reach?
18. When will the loan recast?
19. How will my payment be calculated after the recast?
20. What happens if I reach the negative-amortization cap early?
21. What happens if property values decline?
22. Could I owe more than my home is worth?
23. Can I refinance without paying a penalty?
24. Does the loan have a prepayment penalty?
25. Can you provide a Loan Estimate for a comparable fully amortizing mortgage?

How to Compare a Negative-Amortization ARM With a Safer Alternative

Consider three hypothetical options.

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This does not mean a fixed-rate mortgage is always the best option.

The appropriate loan depends on the borrower's circumstances.

But the table demonstrates why the lowest starting payment should not be the only decision criterion.

Warning Signs During the Application Process

A Florida buyer should slow down if:

• The lender emphasizes only the initial payment
• The loan's maximum payment is not clearly explained
• The borrower cannot identify the index
• The margin is unclear
• The lender cannot explain whether the balance can increase
• The negative-amortization feature is buried in the paperwork
• The borrower is told refinancing will definitely solve future payment increases
• The borrower is encouraged to rely on expected home appreciation
• The borrower has not received or reviewed the Loan Estimate

The CFPB advises consumers to understand risky loan features and compare alternatives before proceeding. 

What a Florida Buyer Should Do Before Closing

A disciplined process can reduce surprises.

1. Read the Loan Estimate

Look for the loan type and special features.

2. Review the Promissory Note

The note contains the contractual obligations governing the loan.

3. Identify the ARM Formula

Find the:

Index + Margin

4. Identify the Payment Formula

Determine whether the payment is fully amortizing.

5. Check for Negative Amortization

Confirm whether the balance can increase.

6. Identify the Recast

Find out when and why the payment could be recalculated.

7. Calculate the Maximum Payment

Do not rely only on the initial payment.

8. Compare Alternatives

Ask for a comparable fully amortizing ARM or fixed-rate Loan Estimate.

9. Stress-Test the Household Budget

Make sure the borrower can tolerate a substantially higher payment.

10. Avoid Assuming a Future Refinance

Treat refinancing as an option—not a guaranteed exit strategy.

What Existing Florida ARM Borrowers Should Monitor

If you already have an ARM, monitor your mortgage statement and adjustment notices.

Pay attention to:

Current balance

Interest rate

Payment

Adjustment date

New payment

Principal portion

Interest portion

If your balance is increasing despite making payments, contact your mortgage servicer and ask why.

The CFPB notes that borrowers can check their loan documents and contact their servicer to determine whether they have an adjustable-rate or negative-amortization feature. 

Do not wait until a payment recast creates a financial problem.

Final Thoughts

Negative amortization is one of the most important risks Florida buyers should understand when evaluating an adjustable-rate mortgage with unusual payment features.

The core issue is simple:

If your payment does not cover all of the interest accruing on the mortgage, the unpaid interest may be added to your loan balance.

That can turn a lower initial payment into a higher long-term debt obligation. The CFPB specifically warns that negative amortization can increase both the mortgage balance and the overall cost of the loan. 

For Florida buyers, the most important warning signs include:

A minimum payment below accrued interest

A payment cap

A negative-amortization feature

A potential balance increase

A large future payment recast

A significant gap between the initial rate and fully indexed rate

Reliance on future refinancing

Reliance on future property appreciation

A sophisticated ARM analysis should therefore look beyond the introductory rate.

Consider:

Initial Rate

Index

Margin

Rate Caps

Payment Caps

Lookback Period

Reset Frequency

Negative-Amortization Limit

Recast Rules

Maximum Rate

Maximum Payment

Total Housing Cost

The CFPB recommends that borrowers determine how high their rate and payment can go and whether they can afford those maximums. 

For a Florida homebuyer, the right question is not simply:

"How low is my payment today?"

It is:

"Will this mortgage remain affordable if the rate changes, the payment increases, and the loan balance does not decline as expected?"

If the answer is unclear, the loan deserves additional analysis before closing.

Frequently Asked Questions

What is negative amortization on an ARM?

Negative amortization occurs when the mortgage payment does not cover all of the interest due, causing unpaid interest to be added to the loan balance. 

Does every ARM have negative amortization?

No. An ARM can adjust its interest rate while remaining fully amortizing. Negative amortization is a separate loan feature.

Can an ARM payment increase without negative amortization?

Yes. A standard fully amortizing ARM can have a higher payment after an interest-rate adjustment without allowing the principal balance to increase.

What causes negative amortization?

It can occur when the required payment is less than the interest accruing on the loan. Payment caps and minimum-payment options can create this situation. 

Is an interest-only ARM the same as negative amortization?

No. An interest-only payment can cover all accrued interest while paying no principal. Negative amortization occurs when the payment does not cover all accrued interest.

What is a payment cap?

A payment cap limits how much the required payment can increase during a particular period. If the payment does not rise enough to cover accrued interest, negative amortization may occur under the loan's terms.

Can my mortgage balance increase even if I make every payment?

Yes, if the mortgage contains a negative-amortization feature that permits unpaid interest to be added to principal. 

What is a negative-amortization cap?

It is a contractual limit on how much the mortgage balance can increase through negative amortization before another payment or loan adjustment occurs.

What happens when the negative-amortization cap is reached?

The loan may require a payment recast, potentially resulting in a substantially higher fully amortizing payment. The exact rules depend on the mortgage contract. (OCC.gov)

Why can negative amortization be dangerous?

It can increase the mortgage balance, reduce equity, increase future interest costs, and potentially leave the borrower owing more than the property is worth. 

Can negative amortization make refinancing harder?

Potentially. A higher mortgage balance can reduce available equity and increase the loan-to-value ratio, which may affect future refinance options.

Can negative amortization make selling a Florida home harder?

Yes. If the mortgage balance exceeds the property's sale value, the sale proceeds may not be sufficient to pay off the mortgage and transaction costs. 

Where can I see whether my mortgage has negative amortization?

The Loan Estimate identifies a negative-amortization feature when applicable, and the Closing Disclosure and loan documents provide additional information. 

What is the fully indexed rate?

It is generally the applicable ARM index plus the lender's margin, subject to applicable rate caps. 

Why should I compare the initial rate with the fully indexed rate?

The initial ARM rate may be temporary. Once the introductory period ends, the rate generally adjusts according to the index and margin. 

Do ARM rate caps eliminate negative-amortization risk?

No. Rate caps limit interest-rate changes. They do not necessarily ensure that the payment will cover all accrued interest.

What should Florida buyers ask their lender?

Ask whether the loan balance can increase, whether unpaid interest can be capitalized, how the payment changes after an adjustment, when the loan recasts, and what the maximum payment could be.

Should I choose an ARM with negative amortization because the initial payment is lower?

A lower initial payment does not by itself make the loan less expensive or less risky. Compare the complete payment and balance structure with a fully amortizing ARM and fixed-rate alternatives.

Is negative amortization always prohibited?

No. Certain mortgage products can contain negative-amortization features, but federal disclosure rules require these features to be disclosed. 

What is the biggest warning sign for Florida buyers?

The clearest warning sign is a loan where the required minimum payment can be less than the interest accruing each month, allowing the unpaid interest to increase the mortgage balance.

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