Mortgage Advice

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Mortgage Disclosure

Negatively Amortizing

• Before You Apply

What to do to prepare up to a year in

advance of your mortgage application.

• Can You Trust Your Loan Officer?

Who does your loan officer work for,

and how do you find the best one?

• Lender, Broker, or Bank?

Which type of loan Provider is right for

you?

• Types of Mortgage Loans

The types of mortgage loans and

their advantages and disadvantages.

• Types of Documentation

Your options for disclosing how much

you make and where it comes from.

• Underwriting

What does an underwriter look for

when analyzing your loan application?

• Pre-Approval

What it is and isn't and how it saves you

time and heartache.

• Credit

What it is, and how it affects your life.

• Income & Employment

How much you need to make and for

how long in order to qualify.

• Assets/ Down Payments

How much, where from, and what kind

of money will work.

• Down Payment Assistance

Short on funds? Learn about your

options and explore these resources.

• Processing

What happens to your application after

you sign it and before you close?

• Title

What is it, what does it mean, and how

does it work?

• Appraisals

What is your home worth, why you

should bother to find out, and how

does it affect your loan?

• Alternate Financing

Facing rejection? Time to get creative.

• FHA

Low down payment, forgiving

qualifications. A great loan option.

Negatively amortizing loans

Some types of ARMs offer payment caps rather than interest

rate caps, which limit the amount the monthly payment can

increase. If a loan has a payment cap but has no periodic

interest rate cap, then the loan may become negatively

amortized: if the interest rates rise to the point that the monthly

mortgage payment does not cover the interest due, any unpaid

interest will get added to the loan balance, so the loan balance

increases. However, you always have the option to pay the

minimum monthly payment, or the fully amortized amount

due.

For example, y our loan has a payment cap of 7.5%. If your

payment is $1,000 per month and interest rates rise, your new

payment would normally be $1200/mo (for example). But

your capped payment is only $1075. The other $125 gets

added to your loan balance, to be paid off over time, unless of

course you decide to pay that additional amount now.

The advantage of negatively amortizing loans is that you can

control cash flow (relatively stable payment), take advantage

of low interest rates relative to the market at any given time,

and pay back the money borrowed today at a depreciated

value years from now (because of natural inflation). This

makes such loans a great tool for homeowners as long as you

understand the mechanics of what's going on.

With most ARMs, the interest rate can adjust every six

months, once a year, every three years, or every five years.

The interest rate on negatively amortized loans can adjust

monthly. A loan with an adjustment period of 6 months is

called a 6-month ARM, with an adjustment period of 1 year is

called a 1-year ARM, and so on.

Most ARMs offer an initial lower interest rate than the fully

indexed rate (index plus margin) during the initial period of

the loan, which could be one month or a year or more. It is

also known as teaser rate.

All ARMs are available with 30-year terms and some with

15-year terms.