What is Adjustable Negative Amorization?

Part of the Video Series How to Pick a Mortgage

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Understanding mortgage graphs and adjustable negative amortization is important when buying a house. See why in this free video on real estate and bank loans.

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What is Adjustable Negative Amorization?
Hi, this is Jim DiVietri from Alight Home Mortgage in Lansing, Michigan on behalf of Expert Village. Again, what is negative amortization? This is something when you get into a loan like this you have to know. It does not take away from principle, in fact it adds principle so if you're going to use the minimum payment which is the negative amortization, you've got a hundred thousand dollar loan, you're paying on the minimum, the minimum is say four hundred dollars, your thirty year fixed on that same loan would be six hundred and fifty. The interest only would be somewhere in the vicinity of five hundred. Your minimum payment is four fifty, that means that you're putting about fifty dollars back onto principle. So your loan for the hundred thousand dollars would be a hundred thousand and fifty dollars. Now what do I mean by this is the cheapest loan you can possibly get? If your interest rate is at 2.5 for this loan, that means that you're borrowing that money at 2.5. Yes, it does put it down at principle but you're, usually in a situation where you're going to have to use your Visa which is twenty percent interest or your home equity cash line which is eight percent but your minimum payment is only 2.5, yes it does put it down, back on principle but it is a cheap loan to use. You don't want to use that loan all the time and like I said, it's usually used for people that are in seasonal, sometimes they'll make the fifteen year payment which really pays down on principle because that's only amortized over fifteen years. Amortization is what your loan is divided by the number of years, like when I say amortized for thirty years, that hundred thousand dollars is strung out for thirty years and chopped up into thirty equal years and the payments that are involved for each individual month so amortization for fifteen years is strung out for fifteen years and so the payment is a little bit higher for the fifteen year payment.

About the Expert

Expert: Jim DiVietri Worked as a mortgage loan officer for over 5 years in Lansing, MI. Read More