How can mortgage balance grow instead of decline?

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DEAR BOB: We look forward to your educational and entertaining columns. But now we have a real estate problem we never expected. About a year ago, we bought our home with the help of an adjustable-rate mortgage at 1.95 percent interest. We knew it would adjust after six months to 4.95 percent interest. That was quite a jump in our monthly payment, but we handled it. However, when we received the lender's Internal Revenue Service 1098 year-end report, we learned our mortgage balance has grown by about $7,800. When I called the lender, I was told the increase was "unpaid interest." What's that? --Jerry G. DEAR JERRY: The lender should have explained the 1.95 percent "teaser" interest rate and your current 4.95 percent interest rate don't fully pay the ARM interest rate, which probably adjusts monthly, earned by the lender. The unpaid interest you didn't have to pay was added to your mortgage's principal balance each month. Purchase Bob Bruss reports online. This is called "negative amort...