| Most Property Owners are conditioned to believe that | | | | payment each and every month. |
| a Negative Amortization Mortgage is a Bad thing. | | | | The Pros of a Negative Amortization is that is very |
| Before you get that next mortgage shouldn't you get | | | | easy to create a annual budget since you know that |
| the facts so you can decide for yourself what is best. | | | | your mortgage payment will never exceed the |
| The First Question many people have is what is a | | | | payment cap. The flexibility to pay more is should you |
| negative Amortization Mortgage. A Negative | | | | be able to is also a nice plus |
| Amortization mortgage is an Adjustable Rate | | | | Another Pro of a Negative Amortization Mortgage is |
| Mortgage with predictable payments over the life of | | | | that it offers very low introductory rates with |
| the mortgage. On an Adjustable rate mortgage you | | | | payments fixed for the first 5 or 10 years. This means |
| can have interest rate caps and/ or payment caps. A | | | | anyone can buy a home and know that for the next 5 |
| Payment Cap says your payment can never increase | | | | or even 10 years their monthly payment will be the |
| by some cap usually every year. So if you have a | | | | same. |
| $500 Month Payment on an Adjustable Rate | | | | Here is an Example of 2 different Loans. A Negative |
| Mortgage with a payment cap of 7.5 Percent per year | | | | ARM loan with a fixed payment for 5 years based on |
| your monthly payment cannot be higher then 537.50 | | | | an interest rate of 1.95 Percent or a 30 year Fixed |
| the following year. | | | | Rate of 5.5 Percent, A 250,000 Loan at 5.5 percent |
| Now if your interest rate were to rise enough to force | | | | would run about $1420.00. A 380,000 Loan at 1.95 |
| the needed payment to be $540.00 a month you | | | | percent would run about $1395.00 a month. For $25 a |
| would be in a negative Amortization situation. | | | | Month lower payment you are controlling $130,000 |
| The Additional $2.50 a month would be added to your | | | | more property. That extra $130,000 would grow by |
| principle. You can think of a Negative Amortization as | | | | $35,000 in the first 5 year at a modest 5% |
| an automatic loan from your bank. Every month when | | | | appreciation Rate ($52,000 at 7 Percent, $79,000 at 10 |
| you get your statement from the bank you will see at | | | | Percent) At the end of 30 Years at 5 Percent that |
| least your payment options. Option 1 is the Minimum | | | | $130,000 would grow to over $560,000. (Over |
| payment. If option 1 would force a negative | | | | $989,000 at 7 Percent, Over 2.2 Million Dollars at 10 |
| Amortization you will also see an Option 2 which | | | | Percent) |
| would be the interest only payment. You may also see | | | | When one considers the payment flexibility, the low |
| an Option 3 which would be the payment needed to | | | | starting introductory rates, a Negative Amortization |
| pay off your loan in 30 Years. Some banks will give | | | | Mortgage will allow most homeowners to control more |
| you additional options like 15 Year pay outs. | | | | real estate for the same or less money. The Negative |
| The Downside of a Negative Amortization Mortgage is | | | | Amortization Mortgage is certainly something to be |
| that in areas where real estate values don't rise or | | | | considered by most homeowners or prospective |
| even fall you could end up owing the bank more then | | | | homeowners. |
| your home is worth if you only make the Minimum | | | | |