What is it called when a mortgage loan amount becomes larger than the original loan amount, resulting in a decrease of the equity the borrower has in the property?

The term that describes a situation where the mortgage loan amount becomes larger than the original loan amount, and consequently results in decreased equity for the borrower, is known as negative amortization. This occurs when the payments made on the mortgage are not sufficient to cover the interest accrued during the loan period. As a result, the unpaid interest is added to the principal balance, increasing the total amount owed. This can significantly reduce the equity the borrower has in the property over time because their debt is growing while the value of their ownership stake decreases.

In contrast, equity buildup refers to the process of increasing equity through regular mortgage payments or property appreciation, while positive amortization is when payments are structured to ensure that the mortgage balance decreases over time. A loan modification typically involves a change in the terms of an existing loan agreement, not a situation where the mortgage balance increases beyond the original amount.