What Is Shortfall Interest Charge?

A shortfall interest charge is interest due after a borrower has made their monthly payment. On certain adjustable-rate loan, negative amortization may occur. The financial term for a rise in the principal of a debt due to failure to pay interest is called negative amortization.

KEY TAKEAWAYS

• When interest on a debt payment is not covered, a shortfall occurs.
• An interest rate cap may limit monthly payments on a variable-rate mortgage to less than total interest due.
  

  How Interest Shortfalls Work

  This is known as negative amortization. Negative amortization is the term used to describe this.

  The negative amortization protects borrowers from the shock of an abrupt rise in ARM interest rates. It may take longer to amortize the loan, and equity in your home will drop if rates increase. Even if the value of the home increases, the interest rate will still increase.

  Interest shortfalls on MBS

  When there is an interest shortfall, the market for mortgage-backed securities will usually delay interest payments. The subordinate class will usually be the first to pay, with senior tranches being repaid.

  Shortfall interest charge (SIC) rates

  Learn when the shortfall Interest Charge (SIC) is applicable for changes in income tax assessments as well as current SIC rates.

  When SIC applies?

  A shortfall charge of a reduced interest rate was introduced for income tax assessments made in 2004-05 and later years on 29 June 2005. This charge is a reduction of the general charge of interest that was charged to income tax deficits prior to the amendment of the assessment.

  The SIC and amended assessment (or tax shortfall) are due 24 days after the date on which the amended assessment is issued.

  GIC continues to apply for any tax shortfalls found in amended assessments from 2003-04 and earlier income years. GIC is applied as of the original assessment due date.

  If not paid by the due date, GIC applies to original assessments and tax shortfalls.

  This link will allow you to download the following file:ROSA in brief – shortfall interest charge (NAT 4920, PDF 221KB)This link will download a file

  Calculation of Shortfall Interest Charge (SIC)

  The SIC is calculated every day.

  The SIC rates change quarterly. The rates for the next quarter are usually announced about two weeks prior to the beginning of the quarter.

Quarterly Shortfall interest charge (SIC) rates

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