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!