Negative Amortization Mortgage Loan Information
A negative amortization mortgage loan or NegAm as it is sometimes refered to is basically when aloan payment for any period not enough to cover the interest charged over that period of time. This causes the outstanding balance on the loan to increase instead of decrease with each payment made. This type of loan is most often used as a mortgage loan by a corporation, and are sometimes referred to as PIK loans. Negative amortization mortgage loans usually only have this negative amortization schedule as an introductory period and once it expires a larger payment must be made in order to avoid default on the loan.
The purpose these types of loans are usually for advanced cash management or short-term payment flexibility. Negative amortization mortgage loans are not set up or desigend to make a mortgage more affordable. Usually the introductary negative amortization period is no more than 5 years and at this time the loan must be “recast” or setup on a fully normal amortization schedule.