What is failing to meet the monthly interest expense and deferring the outstanding amount to a future date called?

The concept of failing to meet the monthly interest expense and deferring the outstanding amount to a future date is referred to as deferred interest. This occurs when borrowers do not pay the interest that has accrued during a specific period and instead add that unpaid interest to the principal balance of the loan. This practice can lead to an increase in the total amount owed, as the borrower will end up paying interest on the deferred interest as well.

Deferred interest is often seen in certain types of loans, such as some adjustable-rate mortgages, where the monthly payments may not cover the full interest due, allowing the unpaid interest to accumulate. This situation contrasts with other terms like forbearance, where a lender agrees to temporarily reduce or suspend payments, or loan modification, which typically refers to changing the terms of a loan for ongoing affordability. Default, meanwhile, refers to a failure to meet the contractual obligations of the loan itself, which is a more severe situation than simply deferring interest. Therefore, deferred interest specifically captures the practice of not paying interest now and deferring it to a later date.