What is deferred interest (negative amortization) ARM?
Statistics shows that consumers shift away from conventional mortgages to non-tradtional ones, such as the Neg Am loans, also called Option ARMs, or Pick-a-Pay adjustable rate mortgage loans. In short, deferred interest or negative amortization ARM loans are adjustable rate mortgages that offer several payment plans to the borrower with one of them leading to negative amortization. Negative amortization is accrued interest that is unpaid and, therefore, added to the loan balance. An ARM (adjustable rate mortgage) is basically a mortgage with interest rate that can be valid for several months to several years and then adjusts to an ARM index plus margin set by the lender. Needless to say, ARMs can have a very low monthly payment that can go up or down as adjustment time arrives.
