What is the term for the situation where deferred interest is added to the loan balance, causing it to grow larger?

The correct term for the situation where deferred interest is added to the loan balance, causing the loan amount to grow larger, is negative amortization. This occurs when the payments made on a loan are not sufficient to cover the interest due, resulting in the outstanding balance increasing over time rather than decreasing.

In a negative amortization scenario, borrowers may initially enjoy lower monthly payments that do not fully pay down the interest charged, which can happen in certain types of loans such as adjustable-rate mortgages with a payment option. As a consequence, the unpaid interest gets added to the principal balance, leading to a situation where the debt burden increases even when payments are being made.

This contrasts with positive amortization, where payments contribute to both interest and principal, reducing the loan balance over time. Loan restructuring involves changing the terms of a loan to make it more manageable, which does not inherently involve deferred interest growing the balance. Interest accumulation, while relevant in a general context, does not specifically denote the scenario of increasing debt due to deferred interest leading to negative amortization.