Yes, adjustable rate mortgages (ARMs) that have a payment cap can pose a negative-equity threat. Let's say that interest rates rise, but your lender can only raise your monthly payment by a set amount. If the new monthly payment does not fully pay the interest you owe, the unpaid interest is added to your mortgage balance. In this case, your unpaid mortgage balance increases each time you make a monthly payment. This is called negative amortization, which can lead to negative equity.