Agent

What is a negative amortization home mortgage?

Impact to borrower depends heavily on home-value growth
Published on Aug 2, 2006

DEAR BOB: Several times you recently mentioned negative amortization home mortgages. What does that mean? Is it good or bad? --Myron H. DEAR MYRON: A negative amortization home mortgage is an adjustable-rate mortgage (ARM). The borrower's monthly payment remains fixed for a specific time, such as one year, three years, or even longer. Such loans can be a big help to home buyers because their monthly mortgage payments won't increase for the agreed period. Purchase Bob Bruss reports online. However, because it is an ARM, the interest rate adjusts periodically, such as monthly, quarterly, semi-annually or annually. When the interest rate goes up, but the monthly payment stays fixed, the unpaid interest is added to the mortgage's principal balance. In other words, instead of the mortgage balance amortizing over the 30-year mortgage life, the balance amortizes "negatively" by increasing. That's all right if the market value of the home is appreciating. However, if the home's value doesn't ...

Comments