Plus for Negative

While Kass’ explanation of a lower start rate and actual higher interest rate being charged was correct, the additional features and benfits of this type of loan were omitted.

With negative amortization, the borrower can pay the lower initial monthly payment based on let’s say 7 1/2% or 8 1/2%, but has the option to pay the difference if the rate being charged is higher, to use the article’s example “10% or 11%.” This allows homeowners to meet the needs of their monthly cash-flow expenditures.

Additionally, this type of a loan offers many payment options, another one being paying a loan off in full, that was originally written for 40 years in 15 years. Furthermore, this type of loan may have a built-in feature to access equity in the future.

And last, but certainly not least, principle reduction of an adjustable-rate loan can also afford a lower payment. Unlike fixed-rate loans, where the payment remains the same. If a borrower were to make a lump sum payment on their loan, let’s say $5,000 or $10,000, when the loan is re-amortized, the payment will be based on only the remaining principle.

MARIA SKELLIE

Regional manager,

American Savings Bank

Arcadia