Payment caps -continued

For example, if your payment is $1,000 per month and interest rates rise, your new payment would normally be $1200/mo (for example). But your capped payment is only $1075. The other $125 get added to your loan balance, to be paid off over time, unless of course you decide to pay that additional amount now. This type of loan is called a negatively amortizing (or neg. am.) loan.