| There is a lot of confusion between the terms | | | | originally $300,000 has ballooned to $369,241.25! |
| "reverse amortization mortgage" and "reverse | | | | Let's run the numbers for the post negam or regular |
| mortgage." Compounding the confusion is the fact that | | | | stage of this mortgage. The term of the mortgage is |
| the word "amortization" is probably the hardest word in | | | | 30 years. So now, there are 25 years left for the |
| the English language to spell. It is commonly written by | | | | borrower to pay $369,241.25 at 7.75%. This will require |
| some very intelligent folks as amorazation or | | | | a minimum monthly payment of $2,788.99, or exactly |
| amerazation. | | | | $1,800 a month more than the borrower has been |
| As a result, many people just leave the amortization | | | | paying. |
| part out, and do web searches for reverse mortgages | | | | These numbers are the exact numbers taken from an |
| when really what they want to find out about, and | | | | existing negative amortization mortgage. There are |
| hopefully learn to avoid, are negative amortization | | | | many variations to how a negam works, but with |
| mortgages. | | | | every one, the monthly payment starts small and the |
| On the other hand, some people may be interested in | | | | principal increases in the negam period. Then, in the |
| a reverse mortgage, but end up being solicited by a | | | | regular period, the required monthly payment increases, |
| throng of crazed mortgage brokers who want to sell | | | | sometimes to 2, 3 or even 4 times its original amount. |
| them a negative amortization mortgage. | | | | A reverse mortgage |
| Let's see if we can help lift the fog on these confusing | | | | A reverse mortgage was devised to help retired |
| terms that describe a couple of very dissimilar types | | | | people augment their income. This type of mortgage is |
| of mortgages. | | | | available to people who are 62 years of age and |
| A reverse or negative amortization mortgage | | | | older. |
| A negative amortization mortgage is sometimes | | | | With a reverse mortgage the retiree sells off some of |
| referred to as a reverse amortization mortgage. With | | | | his/her equity in their home and can opt to receive the |
| either terminology, what happens with this type of | | | | payment in a lump sum, as monthly payments, or as |
| mortgage is that the principal owed on the mortgage is | | | | has become most common, a line of credit to be used |
| allowed to increase in the early stage of the mortgage. | | | | at any time for anything. |
| This early stage is commonly referred to as the | | | | The person taking the reverse mortgage is not |
| negative amortization or negam portion of the | | | | required to pay anything back on the mortgage, but |
| mortgage. This negam stage usually lasts 3 to 5 years. | | | | sometimes there is a time limit to which he/she will |
| For example, a borrower takes a mortgage on his/her | | | | receive payments on the reverse mortgage. |
| property for $300,000. Under the terms of the | | | | Many times a reverse mortgage is structured where a |
| mortgage, he/she will be required to make the | | | | person sells his/her equity and in return will receive |
| minimum monthly payment of $988.99 each month for | | | | monthly payments for life. Of course, in this case, after |
| the first 60 months, or 5 years of the mortgage. This | | | | the homeowner is deceased, he/she cannot leave the |
| 5-year period is, of course, the negam period. When | | | | equity, which has been sold in the reverse mortgage to |
| you calculate the interest rate for this negam period | | | | his/her descendants. So, if all the equity has been used |
| you'll find that it is 1.173%! | | | | for a reverse mortgage, the deceased person will not |
| When the negam period ends, basically, the party's | | | | be able to leave the home to anyone. |
| over. Under the terms of this particular mortgage, the | | | | Despite that drawback, a reverse mortgage can be |
| interest rate increases to 7.75% and that's not all! The | | | | great tool for a retired person to use as a way to add |
| interest rate has been 7.75% all along, but the | | | | more income to his/her pension and/or social security. |
| borrower was not obligated to pay this much during | | | | On the other hand a reverse or negative amortization |
| the negam stage of the loan. So, what happened was, | | | | mortgage was devised, in my opinion, as a way for |
| the interest that wasn't being paid during the negam | | | | banks and other lenders to drum up more business by |
| stage was being added on to the principal of the | | | | qualifying borrowers who may eventually end up in |
| mortgage. Now, 5 years later, the principal that was | | | | foreclosure because of them. |