Deferred Interest
Direct definition
Deferred interest is interest that accrues on a loan but is added to the balance rather than being paid currently, increasing the amount owed over time.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Some loan structures allow a payment that doesn't cover the full interest due; the unpaid portion is added to the principal balance, a process sometimes called negative amortization. This differs from simply paying a lower rate — the loan balance can actually grow rather than shrink.
Why it matters
Understanding whether a loan includes deferred interest is important because it can mean owing more over time than originally borrowed.
Where you may see it
- Loan Estimate
- Note disclosures
- Amortization schedule
A real-world example
Educational and illustrative only
A common misunderstanding
Deferred interest is not the same as a low introductory rate; it specifically refers to unpaid interest being added to the loan balance.
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- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026