How to Get a Negatively Amortizing Mortgage
Negative amortization mortgages are loans where your overall balance will show an upward trend as the time frame of the loan shortens. This occurs in cases when the borrower makes only interest related payments in the first few years, rather than paying the amortization of the principal as well. This in turn increases your overall balance where the remaining amount is periodically added to the loan balance.
Many mortgage lenders and banks have used negative amortization as a means to attract borrowers, where they pay less amounts upfront but eventually end up getting strangled with a balloon payment at some point. While the lure of this amortization is certainly appealing, one should only exercise this if he or she has the capacity to meet the overall loan balance at the end of the term.
Instructions
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The basic concept of this theory implies that homeowners can choose whatever monthly payment they wish to make after meeting the minimum requirement. The difference between the interest rate they were suppose to pay and were paying was added back to the principal balance.
Obtaining this was relatively easy during the early 2000s due to the increased demands. With little regulation, homeowners easily qualified for the minimum requirement. All they had to do was provide a suitable proof of their income and contact either a bank or a mortgage lender. They could carry the exercise on their own by calculating the amount with the help of the calculator (online as well). -
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At first, it seemed a viable option, given that homeowners wanted to pay low interest rate in the initial years, and as their income sources improved, they were in a position to pay higher amounts. However, with the bubble finally bursting in 2008, it resulted in increased mortgage defaults and foreclosures.
Before getting yourself in the mess, it is important that you totally understand the concept. If you have taken an adjustable rate mortgage, then negative amortization makes sense, given the volatility of the market. -
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Lets consider a simple example. For instance you had to make $600 payments each month under normal amortization circumstances for a 30-year, fixed–rate loan. If you maintained the amount, you will have to make no payments at the end of 30 years. However, if you made payments in the region of $ 500, then the difference will be added to your loan balance.
