Negative amortization

In finance, a negative amortization also known as NegAm for short is an amortization method where the borrower pays back less than the full amount of interest owed to the lender each month. The amount short is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment. Negative amortization would only arise on ARMs with the following features:

• The minimum installment payment due does not cover the amount of interest due on a loan. As a consequence, the balance rises. The purpose of such a feature is to increase affordability, or add payment savings and payment flexibility to a loan.

This loan is written often in high cost areas, because the monthly mortage payments will be lower than any other type of financing instrument.

Negative amortization loans are HIGH RISK LOANS for inexperienced investors. Beware of any advertisements that seem too good to be true, often times they are.

NegAm - Mortgage Terminology

• Cap - Percentage rate of change in the NegAm payment
• Period - How often the NegAm payment changes
• Recast -
• Stop -