There is nothing positive about negative amortization.

These loans have more than one name. A popular name is “payment options” loans. But they all have one thing in common: The minimum monthly payment is not enough to cover the interest due, so unless you pay more than your bill requires (and how many of us do that?), the principle will pile up, You will be paying interest on unpaid interest.

The purpsoe of these loans is to lower the monthly payment so people can buy houses with larger mortgages than they could qualify for under conventional mortgage rules.

Most people think these are a bad idea, and I agree, Unless you know for sure that your income is going to grow substantially relatively soon, you will probably be digging yourself a hole out of which you cannot climb!

I met a high school teacher who fell for one of these. He saw a very low interest rate in the paper and called up to inquire about refinancing his home. He asked if it were a “negative amortization” loan and was told that it was not.

He completed the loan, and then (too late) read the loan documents. The real interest rate was much higher than the rate he had been quoted, and his monthly payments would not cover the monthly interest due. He called the broker and asked why she had lied to him. She said she had not. The loan was not “negative amortization,” it was “optional payment.”

You must be logged in to post a comment.