When it comes to applying for a mortgage, it can be difficult to get the lingo. Many people, understandably, feel overwhelmed by the many regulations before them. If you’ve heard about ‘amortization’ and aren’t clear on its meaning, we’ll explain.
What Is Amortization?
This means paying off the principal through regular payments. You can usually amortize a loan over a period of years.
What Is Negative Amortization?
You might have heard ‘negative amortization’ also called ‘deferred interest.’ They both mean the same thing, and it happens when your monthly payment is not substantial enough to cover the loan interest, causing your principal to grow. You can usually find this in adjustable rate mortgages. Negative amortization means you will usually have larger payments later on.
What’s The Benefit of A Negative Amortization Loan?
This is utilized when people want to lower their monthly home payments. Some people believe that they may be making more money in the future, and can therefore buy a home they aren’t quite able to afford at present. Additionally, some people choose negative amortization if they believe their home will be worth more in the future.
Planning On Buying A Home In The DC Area? Let’s Talk
As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact me any time to learn more about the home buying process if you’re thinking of buying property in the DC Metro area.