How to Get a Negative Amortization Loan

A negative amortization loan is an adjustable rate loan that increases its balance instead of decreasing it as you make your payments. The reason for getting such a loan is that these loans often start with a very low rate, so the borrower's initial payments are very low.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Phone Book
• Real Estate Agents
• Online Mortgage/finance Services

1. Contact a lender. Look in the yellow pages under "Real Estate - Mortgages;" contact a local real estate agent for a referral; call a local bank or savings institution; search the Internet.

2. Ask for an adjustable rate mortgage with the lowest start rate.

3. Understand how often the payment will change, what the maximum change can be, and how much "negative" each payment can contain. A loan will have a negative payment when the amount the lender is charging you per month is less than the loan is costing it per month.

Tips & Warnings

• Make sure you understand how the loan works. An adjustable rate mortgage arrives at an interest rate by starting with an index. The index is some stated rate of interest, either the prime rate (which is the amount the best commercial customers are charged), the 1-year Treasury Bill, or some other averaged cost of money used by the lender. A margin is then added to the index. The margin is a percentage that is influenced by the borrower's credit and amount of down payment. The index changes, thus creating a change in the interest rate charged to the borrower. When the amount the borrower pays on the loan is less than what holding the money costs the borrower, the difference is added to the balance of the loan, thus increasing the balance.
• A negative amortization loan often has the option of paying more each month on your payment to make up for the difference, rather than having that amount added to the loan balance.
• It is very easy for a borrower to get in serious financial problems with a negative amortization loan. If the loan persists, the remaining balance may be higher than the value of the home!