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Negative AmortizationNegative amortization, also known as Neg Amortization, NegAm, NegAmMort, occurs when borrower pays back less than the full amount of interest owed to the lender each month. The difference betweeen full interest and paid amount is added to the total amount owed to the lender. Also known as deferred interest or Graduated Payment Mortgage (GPM). Negative amortization loans can be high risk loans for inexperienced investors. NegAm loans are mostly Adjustable Rate Mortgages or ARM loans with rate based on one of the index rates (LIBOR, TBills etc.). Most COFI, CODI and "Option payment" loans often imply negative amortization if borrower repeteadly choose to pay minimum payment rather than fully amortizing payment. These loans tend to be safer in a falling rate market and riskier in a rising rate market. All NegAm home loans designed to allow Negative Amortization to happen for no more than 5 years, and have terms to recast the payment to a fully amortizing schedule if the balance rises over a prespecified amount. NegAm  Mortgage Terminology Cap  percentage rate of maximum change in the NegAm payment. Cap defines how quickly the NegAm payment can grow in a rising market. Period  how often the NegAm payment changes. Recast  premature stop of loan. Should negative balance reach a predetermined amount (typically 115% of the original balance) the loan will be "recast" with one payment option: principal and interest in high enough amounts to amortize the loan balance in the remaining years of your mortgage. Stop  end of NegAm payment schedule. With NegAm Loan you can afford bigger mortgage than with 30 year loan, or fully amortized ARM loan, but, the danger of negative amortization is that the home buyer may ends up owing more than the original amount of the loan.




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Related Mortgage Definitions: Negative Amortization Negative Amortization Negative amortization, also known as Neg Amortization, NegAm, NegAmMort, occurs when borrower pays back less than the full amount of interest owed to the lender each month. The difference betweeen full interest and paid amount is added to the total amount ... more... Deed of Trust Deed Of Trust In many states, this document is used in place of a mortgage to secure the payment of a note. Used in many states in lieu of a mortgage to secure the payment of a note. In a deed of trust there are three ... more... Graduated Payment Mortgage, GPM Graduated Payment Mortgage, GPM A type of flexiblepayment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it. A mortgage that has lower payments initially (with potential ... more... PITI PITI Principal, Interest, Taxes and Insurance. Also called monthly housing expense. The periodic payment that includes a principal and interest payment plus a contribution to the escrow account set up by the lender to pay insurance premiums and property taxes. If you do ... more... 