| There are many dangers associated with loans and | | | | market value of their home appreciates faster than |
| mortgages, one of these being, the unfortunate | | | | their mortgage balance increases. Often however, with |
| method of repayment known as negative amortization, | | | | an adjustable rate mortgage for instance, the interest |
| or NegAm for short. This method allows the borrower | | | | rate is constantly changing due to economic and |
| to pay back less than the amount of interest owed to | | | | market conditions. |
| the lender, and instead, adds this shorted amount to | | | | For the borrower, this fluctuation creates a great deal |
| the total mortgage balance or loan principal. | | | | of vulnerability, as each month more and more unpaid |
| Amortization does not have to be a precarious | | | | interest is added to the sum of the principal loan. As a |
| procedure. It is simply one’s periodic repayment | | | | result, equity growth is negated by an increase in |
| of a loan. In repaying a mortgage, it is generally | | | | mortgage balance. In entering an amortization term, the |
| expected that a small portion be contributed each | | | | goal of the borrower is to repay the loan in the allotted |
| month. Of this amount, normally, some is put towards | | | | amount of time. For example, with a 30-year |
| the loan principal and some towards the interest. An | | | | mortgage, one is given 360 months. Within the process |
| amortization schedule helps to keep track of the | | | | of negative amortization, this period can hopelessly |
| mortgage payments and balance. | | | | expand. |
| Obviously, the hope of most homeowners is that the | | | | |