Negative amortization (NegAm) loans actually exist
Just when I thought interest only loans were bad I find out about negative amortization loans. Can you believe reputable financial institutions such as banks and mortgage lenders actually allow such a product. A mortgage that actually increases instead of decreases as you pay the payment. Sure you can believe that, it’s a much better deal for the mortgage lender.
A negative amortization loan is a type of loan where the payment on the loan is less than the monthly interest charge. This causes the balance on the loan to actually increase each month instead of decrease. These types of loans are also referred to as a deferred interest or graduated payment mortgage. Most lenders will only allow the negative amortization period to last less than 5 years at which point the loan switches to a normal amortization schedule and the payment increases or the loan must be paid in full or refinanced.
Before you decide to take out a loan on a house do a major budget analysis. If you can’t afford to buy the house, don’t try to work out some creative way to purchase a house you really can’t afford!
Not sure I would ever do a negam loan. I would need some more information about the loan, especially the pros of a negam to actually use one. negam loans sound like a bad deal all around to me?
I would definitely never do such a thing for personal property, such as my house, however I can see the benefits from a business perspective. For instance, if you had a mortgage for a business property, you might choose to do something along these lines to help your business grow a little faster in infancy. For instance, I know a guy who has $2 mil invested in a blueberry farm. Blueberries don’t even produce anything for seven years. Year seven rolls around, he starts making money. Anything he can do in the meantime to minimize payments or push them off till later would probably make sense.
But to reiterate – I would never, ever ever consider doing something like this for personal property.