Many home loans in America are deemed to go underwater — one of them is negative amortization mortgage. Make no mistake about it: this type of home loan is offered for a purpose, primarily for borrowers who only get paid seasonally and can’t regularly make full payments every month. Some lenders market it the wrong way, however, and take advantage of individuals who don’t know any better.
If you qualify for a neg-am loan, regardless of its mortgage rate in Utah, altiusmortgage.com recommends thinking twice before getting it. In many ways, the negative in its name could become destructive when you…
Pay Just the Minimum All the Time
The beauty of this mortgage is that you have the option to pay just a portion of the repayment’s interest and roll the unpaid portion over to the next month. Unfortunately, many people tend to abuse this freedom. Although you’re allowed to do this, you’re essentially making your overall balance higher, therefore more difficult and or more expensive to repay.
Use the Extra Cash to Pay Off Other Higher-Interest Debts
Of course, small minimum repayments means more budget flexibility. It may seem strategic at first to use your "extra cash" to repay other financial obligations with higher interest, but debt consolidation is the worst motivation for getting a negative amortization home loan. If you simply pay the least permissible amount and make no effort to bring your repayments current, then you would end up with an upside down mortgage.
Hope for Your Home Value to Increase
This mortgage could work if the value of your property increases during the negative amortization period and re-sell it quickly after buying it. You could earn a huge profit on this move because you’re repayments are lower than standard. That is if the home value rises.
But what if not? If this is your plan, you’re basically taking a big risk because you can’t control house prices. A particular real estate market could be scorching now, but it house prices suddenly could fall due to a variety of factors.
A negative amortization home loan has positives, but it’s easy to use it the wrong way. Unless you have incredible foresight and solid self-discipline, this mortgage is bound to go deeply underwater.