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Discount Realty FAQ (Frequently Asked Questions)
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-> What is Neg. Am. (Negative Amortization) and why should I be concerned with it
Question
Answer
Negative Amortization
Neg. Am. is a process in which your loan amount is not being reduced, instead it is getting larger, it happens when your payments are lower than the interest rate and the interest rate accumulates over time and is being added to your principle.
Negative amortization IS possible with option #1 (Starting Rate) only. When minimal payment is less than Option #2 (current Interest Only payment). However, you always have an option of paying Interest Only or Fully Amortized payment and NO NEGATIVE AMORTIZATION will result in those two cases. It is a good idea to pay Minimum Payment if you are increasing your cash flow, tight on budget, or would like to invest the extra money elsewhere.
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