You might therefore owe the lender more later in the loan term than you did at the start. However, an increase in the value of your home may make up for the increase in what you owe. To sum up, the payment cap limits increases in your monthly payment by deferring some of the increase in interest. Eventually, you will have to repay the higher remaining loan balance at the ARM rate then in effect. When this happens, there may be a substantial increase in your monthly payment.
Some mortgages contain a cap on negative amortization.
When that point is reached, monthly payments may be set to fully repay the loan over the remaining term, and your payment cap may not apply. You may limit negative amortization by voluntarily increasing your monthly payment. Be sure to discuss negative amortization with the lender to understand how it will apply to your loan. When you are considering an ARM, ask for information about prepayment and conversion. Some agreements may require you to pay special fees or penalties if you pay off the ARM early.