Negative Amortized Mortgages

Did you decide to get into a Negative Amortized Mortgage?
Did your loan perform the way you wanted it too? If you were expecting your value to increase, did it go as high as you thought it would? Are you now owing more than the value of your home? If you have answered yes to any of these questions, you are not alone.

A lot of people were convinced or had been convinced that taking out a Negative Amortized Mortgage was the perfect loan for them! In retrospect, the only ones that benefited were the Realtor, Mortgage Company and the Broker.

The basis of the Negative Amortized Mortgage is that you will pay a minimal amount for your Mortgage, instead of a full principle and interest payment factored over 30 years. In fact, the payment will actually be below the Interest Only Mortgage payment that you chose not to go with.

You were probably told by your Realtor, Lender and Broker that you will be able to "afford a much better and bigger house" by using this program. If your value has increased significantly, congratulations as you are one of the few who actually benefited from this program! Most people unfortunately have found themselves "upside down" on their Mortgage and now owe more than their home is worth! Also, they more than likely will not be able to refinance until their value goes up significantly, or they will actually have to pay money out of their pockets to cover not only the amount of the loan needed to payoff over their value, but also the closing costs. Some people even have to sell their home at a loss, plus pay their Realtor commissions (hopefully they chose a new Realtor!) or even go into Bankruptcy to protect themselves!

I had a Client who wanted to go with this program, their Accountant had recommended using the Negative Amortized Mortgage to their Clients' benefit. Despite my advice, they chose to enter into this type of a Mortgage. They felt that "their property value will dramatically increase as it's a 'very hot area' and the values have gone up every year." This Client was only financing 80% of their home's value, so they would still have equity in the home. My advice then was to contact several Realtors from different Realty Companies throughout the Twin Cities area. These Realtors should offer their market analysis on the current marketing conditions and provide an "educated guess" on the potential future growth value over the next 5 years. If this area truly was a "very hot area of town with values going up every year", then these professionals should be able to provide my Clients a "guesstimate" for a future potential value.

After speaking with this Client recently, they told me that their decision had been a very good one. The Clients did do the extensive research that I had recommended. Now almost 2 years later, the Realtor's "guesstimates" are pretty close to the actual current value of their home. This Client is now able to refinance into a 30 year Fixed Rate Loan that is at a better interest rate. Even though they will be making a fully amortized principle and interest payment, they have more equity in their home, a better rate and are actually making headway on paying off their mortgage. Unfortunately many other people were not as lucky as this Client. I personally do not offer this program to any of my Clients as it is too risky and may not put them in a good financial situation.

It pays to do your research. If you want the best program available, be ready to provide your entire current financial situation plus your current and future financial goals. Consulting a Financial Planner is also a great source of information to help you with one of the most important decisions of your life. It would be my pleasure to assist you in finding the right loan for your needs. If you need a referral for a Financial Planner or Realtor, please call me direct at 763-515-5050 or visit my website http://www.stevengoldmanloans.com/.

As always, thank you for reading my blog and visiting my website. Referrals to friends, family, neighbors and business associates are always welcome!

Steven