Question:

For loans with negative amortization are rates higher?

Answer:

Well, yes, they could be. However, mortgages with negative amortization have rates limited by an interest rate cap. When the negative amortization (Neg Am) loans were first introduced, they were fixed rate mortgage (FRM) loans and negative amortization occurred too abruptly.

Nowadays, most negative amortization home loans are adjustable rate loans with lifetime interest rates capped at below 10%. Also, negative amortization interest rate increases are limited, too. Most of those Neg Am loans have a 7.5% monthly payment increase cap to spare troubles to homeowners.

On the whole, since negative amortization mortgage loans are mostly ARM variations, interest rates do have the potential to grow. However, one should be able to refinance out if market rates begin to rise. Also, because these loans are considered a riskier product some lenders may have a higher margin on them, which would raise the interest rate for the borrower, too.

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Common misspellings: mortage and morgage