| A negative amortization loan is a loan where the | | | | loan it simply means that you're paying it off,hence the |
| monthly payment does not reduce your mortgage | | | | term negative amortization. |
| balance. In other words the monthly mortgage dues | | | | Why Use a negative amortization? |
| don't pay back the principal on the loan. In fact the | | | | The main purpose of a negative amortization is |
| payment being made doesn't even cover the minimum | | | | flexibility in paying back the loan. This type of |
| monthly interest charge. As a result your home | | | | amortization was designed with a certain type of |
| mortgage will increase overtime. | | | | borrower in mind. Normally this is a type of payment |
| How does it work? | | | | that is suggested for people without regular income, |
| | | | | such as commission employees and business owners. |
| Well, your monthly payment is composed by the loan | | | | The idea is that people without regular income might |
| amount, interest rate, and the years that the loan will | | | | have a down month where making a full payment is |
| be paid back. Normally a mortgage payment will | | | | not possible, instead of missing a payment they would |
| include sufficient money to pay off interest and | | | | have the option to apply the minimum amount, avoid |
| principal, in order to effectively reduce your loan's | | | | missing a payment, and add the rest to the back of |
| principal balance. In a negative amortization, you don't | | | | the loan. On the opposite side, if they have a good |
| even pay enough to cover the interest being charged | | | | month then making a bigger payment is also possible in |
| by the bank. | | | | order to catch up on the negative amortization months, |
| What does negative amortization mean to you? | | | | thus allowing the borrower to pay off the principle |
| Since the payment in a negative amortization | | | | balance. |
| mortgage doesn't even cover the minimum interest | | | | Note: |
| charge, the amount that wasn't paid gets attached to | | | | Negative amortization is not for everyone, as time |
| the back of the loan (loan balance will increase with | | | | goes on and more negative amortization payments |
| every payment). In other words, every time you make | | | | are made, the larger the amount of money that will be |
| a negative amortization payment it's like you're taking | | | | owed by the borrower to catch up the loan. |
| out another loan on your home. When you amortize a | | | | |