What is negative amortization?

Jul 14, 2021

Kiritsis Law Group 212 922 0005

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Generally is the type of an installment payment structure, where the monthly payments are sufficient to pay the interest resulting in the unpaid interest being added to the principal. Negative amortization is a noted feature that applies to all mortgages but it is frequently found in loans types with adjustable rate mortgages and graduated payment mortgage schedules.  New property buyers and or inexperienced real estate investors should be on alert, if their mortgage loan permits negative amortization.  Special cases like a reverse mortgage present complexities when drafting state recorded documents with negative amortization features. Negative  amortization loans, have been criticized by some, as an example of predatory lending, as they create a scenario where borrower’s balance of total amount may increase, despite the timely payments being rendered on every month. Others have pointed to negative amortizations, as a necessary and acceptable risk to expanding homeownership opportunities to population groups, who may otherwise could not climb the property ladder. 

 

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