DEPEW, NY, May 22, 2013—If you’re applying for a mortgage for the first time, it may feel like you’re learning a second language. All of the terms and regulations can seem daunting. One that doesn’t need to be is “amortization,” which is just the act of paying off debt in regular installments over a period of time.
“When you amortize a loan you basically pay off the principal by making regular installment payments,” says Peter F. Hunt, Chairman & Chief Executive Officer of HUNT Real Estate ERA, who explains that this process typically takes place gradually over several years.
Another term you may be hearing is “negative amortization.” What is the difference? When your monthly payment isn’t enough to cover the loan interest, then your loan principal increases rather than decreases. This is called negative amortization, otherwise referred to as “deferred interest.”
“Negative Amortization causes the loan balance to increase rather than decrease,” says Hunt. This often happens with adjustable rate mortgages (ARMs).
Negative amortization has to be repaid, which means your payment will rise in the future.
“The larger the negative amortization, the more you will be required to amortize the loan in full,” says Hunt.
So you may be wondering, why would anyone use a negative amortization loan?
“The main reason people use negative amortization loans is to lower monthly payments,” explains Hunt.
“Some homeowners use loans with negative amortization to purchase a house they otherwise can’t afford, resting on the idea that in the future, they will have more income and can make larger payments.”
“With negative amortization, a persistent rise in interest rates reduces the equity in the house unless the negative amortization is offset by house appreciation,” says Hunt. As a result, some use negative amortization if they believe that the house will be worth much more in the near future.
For more information on homeownership, please contact HUNT Real Estate ERA at PHunt@HuntRealEstate.com, 800 688 1170, or HUNT Real Estate ERA.
About HUNT Real Estate Corp. HUNT Real Estate Corp. is the parent company of HUNT Real Estate ERA. With 33 branches strategically located throughout western, central, and upstate New York and Phoenix, Arizona, HUNT Real Estate ERA is the largest family-owned and operated real estate company in the area. A leader in the residential real estate industry with over 100 years of experience, HUNT also operates a commercial brokerage as HUNT Commercial Real Estate, a mortgage banking firm HUNT Mortgage, two insurance agencies HUNT-Vanner Associates and HUNT Insurance Agency, a title agency Network Title Agency of New York, an award-winning Relocation division, a residential building company and a fee-for-service brokerage. HUNTs mission is to build its sales presence through successful sales associates, to grow profitably, and to provide the highest quality of real estate and homeownership services in the markets in which it operates. For more information regarding real estate listings in your local market and HUNTs homeownership services visit www.huntrealestate.com or become our fan on Facebook at www.facebook/huntrealestate.com.