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Add-Back
The add-back refers to the amount added to the loan balance due to the monthly payment being insufficient to pay the actual amount due caused by fluctuating interest rates.
This can also be considered as deferred interest which causes negative amortization.
It can occur in mortgages on adjustable rates loans.
When interest rate fluctuate upwards, the payable amount increases yet the fixed monthly installments remain the same.
Thus, the excess is added back to the balance amount.
Add-back can basically be a term used to refer to any type of debt that defers payment to the creditor.
The key is that the deferred amount is added to the principal balance which would have to be repaid at the end of the loan for the borrower to be released from the debt.
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