There are many dangers associated with loans and mortgages, one of these being, the unfortunate method of repayment known as negative amortization, or NegAm for short. This method allows the borrower to pay back less than the amount of interest owed to the lender, and instead, adds this shorted amount to the total mortgage balance or loan principal.
Amortization does not have to be a precarious procedure. It is simply one’s periodic repayment of a loan. In repaying a mortgage, it is generally expected that a small portion be contributed each month. Of this amount, normally, some is put towards the loan principal and some towards the interest. An amortization schedule helps to keep track of the mortgage payments and balance.
Obviously, the hope of most homeowners is that the market value of their home appreciates faster than their mortgage balance increases. Often however, with an adjustable rate mortgage for instance, the interest rate is constantly changing due to economic and market conditions.
For the borrower, this fluctuation creates a great deal of vulnerability, as each month more and more unpaid interest is added to the sum of the principal loan. As a result, equity growth is negated by an increase in mortgage balance. In entering an amortization term, the goal of the borrower is to repay the loan in the allotted amount of time. For example, with a 30-year mortgage, one is given 360 months. Within the process of negative amortization, this period can hopelessly expand.
There are many websites working to lead investors away from risky financial endeavors. They strive to unveil the economic truths in today’s market of homeownership. For more information on mortgages and loans, visit http://www.1refinanceloan.com.
Don Peirce has been publishing home mortgage and real estate financing solutions on the internet since 1997. You can view this site information at http://www.1refinanceloan.com
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