Posted on: 24th Jul, 2009 02:05 pm
What is a negative amortization loan - Neg Am mortgage?
A negative amortization loan is a type of loan that doesnt reduce your balance. In other words, you're not paying back any principal. In fact, with a negative amortization loan your loan balance increases over time.
Your loan payment is figured by using the loan amount, the interest rate, and the number of years to pay back the loan. For a traditional mortgage, you pay enough each month to cover some interest and some principal. With a negative amortization loan, you don't even pay enough to cover all the interest
Because your payments with a negative amortization loan are not even enough to cover the interest costs, the interest you didnt pay is added to the loan balance. One way of looking at this is that each time you make a payment, you owe the bank more.
Amortization means to reduce something (like your loan balance) over time. A negative amortization loan actually increases your loan over time, so you the loan.
Your loan payment is figured by using the loan amount, the interest rate, and the number of years to pay back the loan. For a traditional mortgage, you pay enough each month to cover some interest and some principal. With a negative amortization loan, you don't even pay enough to cover all the interest
Because your payments with a negative amortization loan are not even enough to cover the interest costs, the interest you didnt pay is added to the loan balance. One way of looking at this is that each time you make a payment, you owe the bank more.
Amortization means to reduce something (like your loan balance) over time. A negative amortization loan actually increases your loan over time, so you the loan.