total jobs On FinancialServicesCrossing

103,347

new jobs this week On EmploymentCrossing

413

total jobs on EmploymentCrossing network available to our members

1,472,965

job type count

On FinancialServicesCrossing

Danger of Deferred Interest Mortgages: Understanding the Risks of Negative Amortization Home Loans

0 Views
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.
Summary: Negative amortization or "neg am" occurs when the minimum payment on a mortgage covers less than the monthly interest charged, causing the balance of the loan to increase instead of decrease. This can happen with negative amortizations loans like a payment option ARM, where payment choices can be calculated based on COFI - The 11th District Cost of Funds Index which demonstrates the average interest rate paid by certain banks in Arizona, California and Nevada or on MTA.

Negative amortization or "neg am" occurs when the minimum payment on a mortgage covers less than the monthly interest charged, causing the balance of the loan to increase instead of decrease. Interest only loans generally don't increase the balance due on a home although they don't diminish the amount due. However, deferred interest loans will increase your loan amount. This can happen with negative amortizations loans like a payment option ARM, where payment choices can be calculated based on COFI - The 11th District Cost of Funds Index which demonstrates the average interest rate paid by certain banks in Arizona, California and Nevada or on MTA - The 12 month Treasury Average, giving you a variety of choices in payments. While these loans can be a good deal when short-term interest rates are low, they are not necessarily the right choice when short term loans have a higher interest rate, like now. For most, now is not the right time to refinance a fixed-rate loan for a deferred interest mortgage. If you are looking to eventually cash out home equity, you should look for a purchase loan that involves paying some of the principal. Not only is it possible you may not build equity in your home with neg am loans, but you also may have a loss of equity through an increased mortgage balance. If you suddenly need to sell your home, you may not be able to get a purchase price high enough to cover your loan. You will also have more difficulty getting a second mortgage behind negative ARM loans. Henry Savage, president of PMC Mortgage notes that on a deferred mortgage, "The mortgage balance can increase as much as $350 per month for every $100,000 that's borrowed. The neg am on a $500,000 loan for example, can be as much as $1,750 per month." He continues by noting, "There are not many circumstances where I would recommend an Option ARM." However, there are a few instances where deferred interest or negative amortization loans may make sense. Neg am loans are good for investment properties when you may be paying a double mortgage. They are also good for self-employed with cash flow issues. If you plan on normally paying some of the principal, but don't know what your cash flow will be like from month to month, it may be helpful to have the option of a minimum payment. Do you homework before deciding on a deferred interest mortgage. Although your payments will be lower, there are inherent risks involved and you may be better off with a fixed-rate mortgage.
If this article has helped you in some way, will you say thanks by sharing it through a share, like, a link, or an email to someone you think would appreciate the reference.



I was very pleased with the FinancialServicesCrossing. I found a great position within a short amount of time … I definitely recommend this to anyone looking for a better opportunity.
Jose M - Santa Cruz, CA
  • All we do is research jobs.
  • Our team of researchers, programmers, and analysts find you jobs from over 1,000 career pages and other sources
  • Our members get more interviews and jobs than people who use "public job boards"
Shoot for the moon. Even if you miss it, you will land among the stars.
FinancialServicesCrossing - #1 Job Aggregation and Private Job-Opening Research Service — The Most Quality Jobs Anywhere
FinancialServicesCrossing is the first job consolidation service in the employment industry to seek to include every job that exists in the world.
Copyright © 2024 FinancialServicesCrossing - All rights reserved. 168