What increases your total loan balance?

By Kimberly Rotter

Reviewed by Gina Freeman

Mar 29, 2024

Read time: 5 min

Couple doing home finances together

Key takeaways:

  • Payments that don’t cover the interest usually increase your loan balance.

  • The option to pause payments is sometimes seen as a benefit, but it’s a potentially costly one.

  • If you aren’t making headway against your debt, you could explore debt consolidation, debt negotiation, or other debt solutions.

Most of the time, loan balances go down over time. But sometimes, they can go up. Understanding what can make your total loan balance increase may help you avoid costly situations and get to debt freedom faster. Because nobody wants to owe more than they have to. 

4 factors that might make your total loan balance increase 

1. Negative amortization

Negative amortization loans allow borrowers to choose very small minimum payments that don’t even cover the interest due. When you only pay that minimum, though, the lender adds any unpaid interest to your balance. That’s called negative amortization. The result is that even though you’re making monthly payments, the amount you owe goes up, not down. 

Most loans, however, are fully-amortizing. That means as long as you make all payments, the loan will be completely paid off at the end of its term.

2. Forbearance or deferment

A forbearance or deferment means your lender has agreed to let you pause or reduce payments for a while. Mortgage and personal loan forbearance typically lasts for 1-6 months. Student loans can be paused for multiple years. 

Most loans still charge interest during a payment pause. (Some federal student loans pause interest during deferment.) If your loan continues to accrue interest, you’ll owe more when your payment pause ends. And as your loan balance increases, your monthly interest goes up, too. You can avoid this by paying your accrued interest each month, even if you can’t make your entire payment during a deferment. 

Achieve tip: In most cases, you’ll need to catch up on any payments that were skipped or reduced during forbearance or deferment. That means when the pause ends, you have to pay extra until you make up for those missed payments. The exception is student loans. You aren't required to catch up after a student loan pause. 

3. Additional borrowing 

Sometimes, you’re allowed to borrow more money after you first borrow—for instance, when you take out a home equity line of credit (or HELOC). HELOCs typically allow you to borrow less than your full credit limit. You can keep your line of credit partially unused and reserve it for emergencies, or you can borrow against it for almost any purpose. Borrowing more, however, always increases your total loan balance. 

4. Late fees

Missing a payment due date often triggers a late fee. You can cover the fee when you make your next payment, or it'll be added to the balance that you owe. If your account is in good standing, and the late payment is an isolated mistake, you may be able to convince the lender to waive the fee. Be reasonable and polite when you ask. 

3 factors that can make your payment go up

1. Variable or adjustable interest rate

Many debts have interest rates that can go up or down as financial markets change. Credit card issuers generally call these rates variable, while mortgage lenders call them adjustable. In both cases, the lender chooses an industry rate to watch (called an index). When the index moves up or down, your interest rate and payment may change according to the terms of the loan. 

If the interest rate on your debt goes up, the total amount that you have to repay will be more than it would have been at the lower rate. The loan balance itself doesn’t go up, but the amount of money you have to spend to get rid of the debt does.

2. Penalty interest rates

Missing payments without a lender’s approval can be more costly than a formal forbearance or deferment. That’s because the lender may charge you a penalty interest rate. Penalty interest rates are a punishment for paying late or violating the terms of your loan (if your payment is returned for insufficient funds, for example). Penalty interest rates are higher than your regular rate, which increases what you have to pay. Technically, higher interest increases your cost but not your loan balance.

3. Taxes and insurance

Sometimes, your mortgage payment includes an amount for property taxes and homeowners insurance. Your lender collects this from you each month and then pays those bills when they come due. This is called escrow or impounding. If your mortgage has impounds, your payment will increase if those costs go up. Higher taxes or insurance costs don’t make your loan balance increase, but they do increase what you have to pay.

What’s next

If your loan balance is going up (or not going down the way you think it should), give your lender a call to find out why. If you have a negatively amortizing loan or a debt with a high interest rate, start looking for ways to bring the cost down and make steady progress on paying it off. Here are some ideas to consider. 

Talk to a debt expert about your situation and what options might make sense

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.

Frequently asked questions

Loans stand on three legs: the amount you borrow, the interest rate, and the time you take to pay it off. If any one of those factors changes, your loan will be affected.

A payoff balance is usually calculated for a specific day, and it includes interest that will accrue in the meantime. For this reason, the loan balance on your statement is out of date the day after it’s printed.

Yes, your loan will continue to accrue interest on the amount you owe. The more you owe, the more interest you’ll pay. However, if you’re charged a late fee, that won’t increase your loan balance. You owe it, but it’s not part of your loan and you won’t pay interest on it.

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