What is a negative amortization loan - Neg Am mortgage?


What is a negative amortization loan - that is a very common question for mortgage loans. Deferred interest loans, the other name for mortgages with negative amortization feature, are those with increasing loan balance during the loan term.

Basic Features of the Negative Amortization Home Loan

Borrowers are allowed to make payments that cover less than the accrued interest during the early years of the loan. In a result, the difference between the minimum and full interest payment is added to the loan balance.

The balance of negative amortization loans is allowed to grow until the negative amortization cap is reached, or the period allowing for deferring some interest expires.

When the limit for balance increase of the negative amortization mortgage is reached, the loan will be recast. That is, scheduled to amortize in a different way and the minimum payment option won't be available any more.

Depending on the mortgage loan agreement, the monthly payment will rise to interest or principal and interest payments. However, the rising process should be limited by a monthly payment increase cap, or loan interest rate adjustment caps.

It is helpful to read about negatively amortizing loans before you decide to take one. Or, schedule a session with a financial advisor to help you understand the intricacies of this mortgage product.

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