FOLSOM, PA, 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 Lisa Pecora & Louise Marchetti, Louise Marchetti & Lisa Pecora Team of Visit Our Website, 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 Louise Marchetti.  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 Louise Marchetti.

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 Louise Marchetti.

“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 Louise Marchetti. 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 Visit Our Website at ljpecora@gmail.com, 16105861300, or Visit Our Website.

There's No Place Like Home! Louise is a native and lifelong resident of Philadelphia, while Lisa is a lifelong resident of Delaware county. We know the area and can help you find your dream home, or sell your current home! Both are members of the National Association of REALTORS, PA Association of REALTORS and Suburban West REALTORS Association and REBAC. We have both taken courses and earned the ABR designation ~ Accredited Buyers Representative. Lisa has also completed the ePro designation and At Home With Diversity. We truly enjoy what we do and love the opportunity to help others make their dreams come true! The most important part of our business of course is YOU the customer/client. We work for you and will work hard to get you from where you are to where you want to be. When not working on real estate we both enjoy spending time with family, spending time at the shore and on the beach, watching the Phillies and reading.