Negative Amortization Loan, What is it?
It might sound strange at first but a negative amortization loan is a kind of loan that does not reduce you loan balance. To put is simply, your principal is not paid back. As a matter of fact, a negative amortization loan will increase your balance over the course of the loan. How Does It Work? The loan amount, interest rate and number of years to pay back your loan is used to figure out your loan payment. A traditional mortgage has you pay enough every month to pay for a portion of the interest and principal. You are not even paying enough money to cover all the interest when using a negative amortization loan. Ok, So What Does “Negative Amortization” Mean? Since the amount you pay with this type of loan is not enough to cover you interest costs the amount of interest you did not pay is added to the balance of the loan. Think of it this way, every time a payment is made you end up owing more. The word amortization means reducing over time. Since a negative amortization loan will incr
