| Negative amortization mortgages are loans where the | | | | grows with time rather than being reduced. |
| monthly payment is not enough to cover all of the | | | | An example of a negative amortization mortgage is an |
| interest due for that month. The unpaid interest is | | | | Adjustable Rate Mortgage that allows the homeowner |
| added to the mortgage principle balance; this means | | | | to pay an optional monthly payment amount. To |
| your mortgage loan is actually growing with time. | | | | illustrate this concept consider a standard mortgage |
| There are certain circumstances where negative | | | | that has a monthly payment of $1,000. At the beginning |
| amortization mortgages make sense and can be a | | | | of the mortgage, $650 or this payment is applied to |
| short term fix to a financial need; however, many | | | | interest, and $350 is applied to mortgage principle. The |
| homeowners experience negative amortization with | | | | same payment with a negatively amortized mortgage |
| their mortgages and don't even know it. Here is what | | | | would be as low as $500 per month; this leaves $150 |
| you need to know about negative amortization and | | | | of unpaid interest each month that is added to the loan |
| your mortgage. | | | | balance. Using a mortgage of this type, you will owe |
| Many homeowners are taken in by mortgage offers | | | | more for your home at the end of the month than you |
| with monthly payments that sound too good to be true. | | | | did at the beginning of the month. |
| When they fail to ask the right questions or read the | | | | There are certain situations where having a negatively |
| fine print they find out too late their payment amount | | | | amortizing mortgage could make financial sense. If you |
| did not include all the interest due and their mortgage | | | | were to lose you job or have an unforeseen financial |
| has been negatively amortizing. If you take out one of | | | | emergency a negative amortization option on your |
| these mortgages the money you save on your | | | | mortgage could ease your cash flow situation. This |
| monthly payment will end up costing you a great deal | | | | should only be used as a short-term solution as it will |
| more down the road. | | | | cost you a great deal more down the road. Negative |
| Normal amortization describes the process where at | | | | amortization mortgages can also be utilized by real |
| the beginning of your loan most of your payment is | | | | estate investors looking to quickly flip a property while |
| applied to interest and very little of the payment is | | | | keeping their monthly mortgage payments as low as |
| applied to loan principal. As time passes this proportion | | | | possible. Use these loans with caution, as negatively |
| of your monthly payment gradually reverses and more | | | | amortized mortgages are a sinking ship that will take |
| of the payment is applied to the loan principal. | | | | your finances down with it. To learn more about your |
| Mortgages with negative amortization never | | | | mortgage options and how to avoid common |
| accomplish this reversal; there is never enough interest | | | | mortgage mistakes, register for a free mortgage |
| paid to cover the interest due. The mortgage balances | | | | guidebook using the links below. |