Florida Mortgage: Negative Amortization and Interest Only Mortgages
Florida Mortgage Broker Discusses Negative Amortization and Interest Only Mortgages
Florida mortgage broker Jim Kemish is the president of Power Mortgage Corp located in Delray Beach, Florida. Power Mortgage, a Florida mortgage broker was established in 1989. Power Mortgage is also a licensed Georgia mortgage broker, Massachusetts mortgage broker, and a Virginia mortgage broker.
Negative Amortization Mortgages
Negative amortization mortgages are sold as "Option ARMS", "Pay Option ARMS", "Pick-a-Pay" programs, and a variety of other names. The characteristic they share in common is a low payment rate, usually between 1% and 1.95%. This rate is not the true note rate; it is the rate that your payment is based on. The true note rate is a market rate, or "fully indexed rate", and may be 5% or more above the payment rate.
The difference between your payment based on the low "payment rate" and the amount that you would have paid based on the "fully indexed rate" is added to your balance.
The term "negative amortization" refers to the potential increase in the loan size over time. A normally amortizing home loan shrinks in size as you make payments. A typical negative amortization loan has the potential of growing to 125% of its original amount.
This type of loan is not all bad. A responsible borrower that understands the program can enjoy and benefit from the reduced payment that normally lasts for a five year period. Servicers of these loans usually provide a very clear monthly bill showing you exactly what is happening to your balance.
On the other hand, this type of mortgage presents a major risk for borrowers that cannot afford more than the minimum monthly payment. Many of today's Florida mortgage borrowers have used these loans to purchase homes in price ranges that would otherwise be out of reach. When the five year "minimum payment" period is over these borrowers will find that they cannot afford to live in the home anymore. They may also discover that they own more than the home is worth. And in today's week real estate market this is a real possibility.
Interest Only Mortgages
Interest only loans allow you to pay only the interest due. The period of time that this interest only payment is allowed is limited and it typically 5, 7, or 10 years. When the interest only period is past the loan is amortized over the remaining years.
Unlike a negative amortization program, these loans do not increase in balance. The benefit is a smaller payment than you would make on a normally amortizing loan.
It is important to be aware that at the end of the interest only period your mortgage will be amortized over the remaining years of the loan. A 30 year loan with a 10 year interest only period would become a 20 year amortizing loan at the end of the 10 year period. This can make a big difference in your monthly payment.
Would you like to discuss your situation? We will be happy to speak with you about the possible benefits of refinancing. Or if you are getting ready to purchase a new home we will be happy to review your choices and help you determine the program that works best for your needs and desires. Interested in credit repair? We offer the most effective credit repair program available anywhere.
Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is a Florida mortgage broker, Massachusetts mortgage broker, Virginia mortgage broker, and a Georgia mortgage broker.