A dual index mortgage is a mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index. Dual index mortgage loans can result in negative amortization. It is a popular mortgage tool in Mexico and Latin America where inflation can reach very high levels and does not exist in the United States.

Example: A Mexican worker has a dual index mortgage and pays 7% to the lender. At the same time, inflation rates are 18%. The rate of the Dual index mortgage loan is adjusted according to inflation rates, but the borrower makes interest only payments at 7%; the borrower's payment is tied to the wages index.

The expectation is that the borrower's payment will eventually rise to the point where it fully covers the interest and the balance will begin to decline. There is only one "minor" setback. If wages and salaries in Mexico don’t keep up with inflation, the payments made by borrowers aren’t going to rise fast enough for this to happen. At the end of the terms, there will be unpaid balances. While lenders in Mexico have written some Dual index mortgage loans on which they accept this risk, in most cases they have insurance from the Mexican government, which stands to take the loss.