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There is still a market for negative amortization loans


The mortgage market has been under the gun over the past 12 months for exotic loan programs, negative amortization loans still fill a needed community, learn who may benefit most.

The sharp decline real estate values has dwindled the number of loan programs available to home owners. Negative amortization loans have received a ton of bad press over this period, but these types of loan programs still fill a niche market and can be beneficial to the right borrower. The main reason negative amortization loans or commonly referred to as neg am loans have gotten so much bad press is that the wrong types of borrowers were approved for this loan based on a simple safeguard of home appreciation that never occurred. Deferred interest mortgages should not have been offered to first time home buyers or as refinance loans for home owners to 95% of the homes value. The basis of a neg am loan is that your loan balance grows larger over time as opposed to a traditional mortgage where the balance is declining or an interest only loan where your balance stays the same. The benefit with this type of loan is that it allows the home owner to make a significantly smaller house payment. So where does this type of loan make sense? Deferred interest mortgages are a great alternative for some seniors who may be considering taking out a reverse mortgage because they typically would save on the interest on the loan as a reverse mortgage is a compound interest loan. Over a five year period with a neg am loan, the borrower would pay out less interest in most cases. Home owners who have equity positions over 50% of their homes value with stable income streams may benefit as the deferred payment may allow them to reinvest their money into areas that offer higher rates of returns. Negative amortization loans may also make sense for loans on second homes that have equity positions over 40% where the owner is not looking to pay of the mortgage. Negative amortization and deferred interest loans fill a necessary product niche in the market, but should only be offered and underwritten to a small percentage of highly qualified borrowers.

3-24-2008 ? LoanNetwork.com





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