What is the term for a situation where the balance of the mortgage loan increases despite payments being made?

The correct term for a situation where the balance of the mortgage loan increases despite payments being made is negative amortization. This occurs when the monthly payments are not sufficient to cover the interest accruing on the loan, leading to an increase in the principal balance.

In cases of negative amortization, the unpaid interest gets added to the principal, which can happen with certain types of loans, such as adjustable-rate mortgages or loans with specific payment plans that allow for lower initial payments. This can create a dangerous situation for borrowers, as the amount owed can grow over time instead of diminishing.

Positive amortization refers to a situation where the principal balance of the loan decreases because payments are sufficient to cover both the interest and some portion of the principal. Amortization generally refers to the process of gradually paying off a loan over time through scheduled payments that include both principal and interest. Capitalization involves adding unpaid interest to the principal balance effectively, which can lead to negative amortization, but is not the term used to describe the overall situation of increasing debt despite payments being made.