What do you think about negative amortization loans.are they good or bad?

amortization
FISHING BUDDIE asked:


i have had a negative amoritation loan on my house now for a year, i owe about 6,000 dollars more on my loan, but i have been able to save a little more than 6,000 dollars, should i keep doing this type of loan or should i get a fixed loan. what are the good and bads for this type of loan

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2 Responses to What do you think about negative amortization loans.are they good or bad?

  1. Get Money
    July 14, 2009 at 3:37 am

    NEGAM loans are usually meant for older people who have no one to leave thier homes to so they “sell” it back to the bank in the future.
    I dont know what your credit score is and that makes a big deal in your decesion but i would recommend geting into a fixed rate because the market is crazy in the summer. If you are thinking that you would like to keep your payments reduced you might want to research a “1%” or option arm. This is a plan that is fixed for 4 years and allows you to pay 1% the 1st year, 2 the 2nd etc.. 4% the fourth but then it is recast and you will want to get into another program before then. My advice to you would be to get into a good fixed rate with a maximum 1 year prepayment penalty or zero prepay.. which is a penalty for you either refi or selling your house until after the pre-pay period.

    The thing i am concerned about in your case is that if the value of your home decreases, and your loan amount continues to increase… you might end up owing more then what you can realisticaly get for your home on the open market if you ever decide to sell. hope this helps

  2. MJ
    July 15, 2009 at 3:14 am

    Negative am loans are horrible in my opinion in this market. It might have been different in the days when interest rates were so high, that hardly anyone could afford to get a new mortgage. But rates are now at almost historical lows. It bothers me that you might be in a situation where you could owe more than your house is worth, if values do not increase. But a lot of it depends upon your current situation. Are you planning to stay in the house for years? Move soon? Are you in an area where values are rapidly appreciating? These are all factors that you have to consider. The main problem with your loan is that you have one that you are NOT paying the current interest rate based upon your situation. That makes me think that you are either in an overpriced mortgage or an overpriced home. It’s never easy to remain in either. I would strongly suggest, that if your credit is in fairly good shape, that you look at refinancing your loan if you plan on being in the same house for a number of years.

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