Past-due mortgage amount added into the loan balance as part of a workout or modification structure.
Capitalized arrearage is a past-due mortgage amount added into the loan balance as part of a workout or modification structure.
Capitalized arrearage matters because it can make a delinquent loan easier to bring back into a performing structure without requiring the borrower to pay the entire past-due amount immediately.
It also matters because capitalization does not make the arrearage vanish. It usually increases the balance that must be repaid through the modified loan structure, payoff, sale, or refinance.
Borrowers usually encounter capitalized arrearage after hardship review, delinquency, or a Loan Modification proposal.
The term becomes practical when the servicer explains how missed payments, fees, or other approved overdue amounts are being handled in the new workout structure.
| Term | What happens to the past-due amount |
|---|---|
| Arrearage | The amount is still past due |
| Capitalized arrearage | The amount is added into the loan balance under the workout terms |
| Repayment Plan | The amount is paid back through scheduled catch-up payments |
| Payment Deferral | The amount is moved out of the immediate catch-up schedule |
A borrower falls behind by several months and receives a modification offer. Instead of requiring a lump-sum cure, the servicer adds approved past-due amounts into the modified loan balance. That added past-due amount is capitalized arrearage.
Capitalized arrearage differs from Arrearage because arrearage is the past-due amount itself, while capitalized arrearage describes how that amount is folded into the loan balance.
It differs from Payment Deferral because deferral may set an amount aside for later handling, while capitalization adds the amount into the balance under the workout structure.
It also differs from Reinstatement because reinstatement cures the delinquency by paying the required amount, while capitalization handles the arrearage through the modified loan terms.