Negative amortization occurs when the monthly payments are not large enough to pay all of the unpaid balance of the loan, therefore increasing the loan balance and going in a "negative" direction. In this particular scenario, a borrower can literally end up owing more money than they originally borrowed. The reason that this occurs is because on a negatively amortized loan, the borrower is given several different payment options.

- OPTION 1: To pay what is known as the fully indexed payment. This is the margin plus index on the adjustable. This payment, which is typically the highest of the options, will prevent you from going negative.

- OPTION 2: An interest only payment. You would not be going negative by making this payment either, but you would not be decreasing the principal balance that you owe on your loan. This is because you are paying only the interest portion and no additional principal to your loan.

- OPTION 3: (And the one that most often gets people into trouble...) The negatively amortized payment. This is a payment that not only does not cover the principal, but dosn't cover all of the interest owed on the monthly payment, therefore accruing negative equity as a result.

Neg Am loans are great for some people and not so great for others. A lot of what you need to know depends on what your short term and long term goals are. If you would like to discuss this further please call or email me. I have helped many people get into the right loan for them for over 30 years. I will break everything down and we will be able to see if this is the right loan for you.