Not all adjustable home loans are created equal

Negative amortization should raise red flag

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Editor's note: Robert Bruss is temporarily away. The following column from Bruss' "Best of" collection first appeared Sunday, April 16, 2006. DEAR BOB: In a recent article you said, "Now you know why I never recommend negative-amortization adjustable-rate mortgages (ARMs)." Does that mean you changed your advice? I recall your many articles recommended the COFI (cost of funds index) ARMs, which have negative amortization. --Tom C. DEAR TOM: ARMs that use the COFI do not always have negative amortization where the borrower's monthly payment increases slower than the interest index increases. The result can be the unpaid interest is added to the mortgage balance, thus creating negative amortization. Purchase Bob Bruss reports online. I have never recommended negative-amortization ARMs. Personally, I have had several COFI adjustable-rate mortgages that didn't have negative amortization. The key question to ask is how often the ARM monthly payment and the index change. ...