Negative Amortization (Deferred Interest)

Negative Amortization is a mortgage term that describes a type of home loan where a borrower makes payments on a mortgage and the loan balance still increases. Also referred to as "deferred interest", these situations arise when borrowers choose loans that are adjustable and have very low initial interest rates. The most common of these loans is the option ARM loan. With this type of loan the borrower is given an initial rock bottom interest rate and several payment methods to choose from. However, in almost every case, the loan is designed to have mortgage balances increase and while the borrower makes regular payments.

Generally the loan works this way. A borrower closes on a loan with a rate somewhere between 1.25% and 2.75%. After an initial period (usually around 3 months) the loan's interest rate begins to adjust. The problem comes in that the interest rate adjusts more often than the payment option. As a result, the borrower will be making a payment on a lower rate when the rate has actually increased. Since the payment option does change until later, the difference in payment between the lower rate (which the borrower is paying) and the higher rate is added interest and therefore added to the loan balance.

The mortgage industry has come up with a clever method to market this. Using the phrase "deferred interest" most industry people will have you believe that the amount of interest added to the loan is small compared to the savings consumers will receive for a discounted monthly payment. However, most lenders will cap the amount that the loan will increase; in some cases, around 25% of the initial loan balance. It is not much of a bargain, when a borrower makes regular payments and the their $200,000 mortgage loan grows to $250,000!

In addition to our Flat Fee pricing we also offer superior savings for those with less than perfect credit. Syndicate knows you have a choice when it comes to mortgages and we would like to service those needs. That is why we streamline our costs, offer flat origination fees and provide updated mortgage rates on a daily basis. We are a part of a small group of mortgage brokers known as Upfront Mortgage Brokers and this is our commitment to you.These qualities are all part of the Syndicate Advantage.

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