Negative Amortization
Amortize means to gradually
reduce. This is what happens when you make payments toward your mortgage
on a monthly basis. The loan balance is reduced, or amortized.
Negative
amortization happens when your monthly
payment is capped, but your interest
rate is not. The fall out too not capping the interest rate is that
you may not be paying the full amount of interest due. The interest that
goes unpaid for that month is added to your outstanding balance,
resulting in negative amortization.
Negative
amortization is most common in
Adjustable Rate Mortgage (ARM)
products. So, in order to avoid negative amortization, be sure to ask
your lender if the program
you are in will or will not result in negative
amortization.
Also,
be sure to go over your Truth
in Lending disclosure with a fine tooth comb. If you see anything
in reference to negative amortization, be sure to call your lender for
an explanation.
Fixed
Rate vs. Variable Rate Mortgages
Mortgage
Closing Costs
Interest
Only Loans
LIBOR
Mortgages
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