| The term "negative amortization" refers to the potential | | | | percentage of retired people for whom these loans |
| for your loan amount to increase over time - in other | | | | are simply not appropriate. |
| words, you might have reverse or "negative" | | | | The HELOC Problem |
| amortization. These loan programs allow you to pay | | | | If you have a negative amortization mortgage you |
| less that the full amount of the interest due on your | | | | may not be able to get a second mortgage or a home |
| mortgage. If you pay less than the full amount of | | | | equity line (HELOC). What's up with this? Second |
| interest due, the difference is added to your principle | | | | mortgage and HELOC lenders base their loans on the |
| balance. A typical negative amortization loan has the | | | | amount of equity that you have in your property. Since |
| potential of growing to 125% of its original amount. | | | | your negative amortization mortgage has the potential |
| It Goes By Many Names | | | | to increase, the amount of equity that you will have in |
| Negative amortization mortgages are sold as "Option | | | | the future is uncertain. You may find that your best bet |
| ARMS", "Pay Option ARMS", "Pick-a-Pay" programs, | | | | for a second mortgage or HELOC is with the same |
| and a variety of other names. The characteristic they | | | | lender that gave you the negative amortization |
| share in common is a low payment rate, usually | | | | mortgage. |
| between 1% and 1.95%. This rate is not the true note | | | | A Lower Payment is Really Nice |
| rate; it is the rate that your payment is based on. The | | | | There are some attractive characteristics of negative |
| true note rate is a market rate, or "fully indexed rate", | | | | amortization mortgages. Well, one anyway. You get to |
| and may be 5% or more above the payment rate. | | | | make a lower payment. A lower payment can mean |
| A Nationwide Phenomenon | | | | many things. It can make that house that you want to |
| I'm a Florida mortgage broker and also hold mortgage | | | | buy affordable. And it can free up your cash flow for |
| broker licenses in Georgia, Massachusetts, and Virginia. | | | | other things. If you have a pile of high rate credit card |
| Florida mortgage customers have increasingly turned | | | | debt you might make a very solid case that you are |
| to these mortgages as real estate values have | | | | better off making the smaller payment on your |
| increased over recent years. This phenomenon, of | | | | mortgage and channeling your savings towards paying |
| course, is not limited to Florida. As home values | | | | down your credit cards. |
| nationwide have increased, borrowers have struggled | | | | Keep an Eye on Your Monthly Bill |
| to find ways to afford homes that once cost half as | | | | You would be well advised to keep an eye on your |
| much. | | | | monthly bill which will tell you how much negative |
| Look at Your Real Cost | | | | amortization is accruing. Make sure that you don't drift |
| And please don't assume that you are saving money. | | | | into a state of denial. When you are ready to sell your |
| Without a doubt you are going to enjoy your tiny | | | | home your proceeds will be reduced by the fattened |
| payment (as long as it lasts), but make sure that you | | | | balance of your mortgage. Florida mortgage |
| take a good look at the fully indexed rate. This is your | | | | customers, like those in other states have seen |
| real cost. Compare the fully indexed rate with the rate | | | | property values soften in the last year. Be aware that |
| on a good old fashioned 30 year fixed rate mortgage. | | | | your equity could be effected by the market as well. |
| You might find that the real cost of your super low | | | | When the Party's Over |
| payment negative amortization loan is quite a bit higher | | | | Normally your minimum payment will increase a small |
| than the fixed rate option that is available. | | | | amount each year for the first five years. At the end |
| It's Not a Fixed Rate Mortgage | | | | of the five years you loan will be recast. This means |
| We often get calls from customers that have been | | | | that your loan will be amortized over the remaining |
| approached by other mortgage brokers offering these | | | | term of the loan - normally 25 years. Make sure that |
| products. And it never ceases to amaze me how | | | | you are prepared for the potential payment change. It |
| many of these callers believe that these are fixed rate | | | | doesn't hurt to ask your mortgage broker to calculate |
| mortgages. At one percent! Occasionally the caller will | | | | the worse case scenario for you. It's best if you know |
| be furious at me for dashing their hopes. If you are | | | | the potential. |
| considering a negative amortization mortgage please | | | | Copyright © 2007 James W. Kemish. All Content. |
| make sure that you understand what you are getting. | | | | All Rights Reserved. |
| As a Florida mortgage company we deal with a fair | | | | |