On the loan estimate, the limit for negative amortization is expressed as:

The limit for negative amortization on the loan estimate is expressed as a dollar amount because this provides a clear and quantifiable cap on how much the borrower’s loan balance can increase due to negative amortization. Negative amortization occurs when the loan payments are not sufficient to cover the interest costs, resulting in an increase in the total loan balance. By setting a dollar limit, borrowers can understand the maximum additional amount they might owe and avoid any surprises in their loan repayment process.

This dollar amount helps ensure transparency, allowing borrowers to make informed decisions regarding their loans. It allows lenders to communicate the potential risks associated with negative amortization clearly. Setting this limit in a percentage or as a range might not provide the same level of clarity about the specifics of how much the loan balance might increase, which can complicate a borrower's understanding of their financial obligation.