Concern Over Negative Amortization
Many of my clients have expressed some concern over the potential for deferred interest or negative amortization in this type of mortgage. While it is immediately obvious that you are in control over when you choose to use the minimum payment rather than the interest only payment, I do recognize that many will use the minimum payment option and will create some negative amortization balance. This page will show you just how small a rate of appreciation will be required to offset te use of the minimum payment every month.
Appreciation vs. Negative Amortization
$300,000 loan at 80% LTV
Annual negative amortization or deferred interest
If you selected the minimum payment every month, at a 2.90% appreciation rate, you break even from an equity perspective, greater appreciation gives you more equity. If you invest the $10,867.32 in any investment paying greater than 1% you are even better off than at the beginning of the mortgage.
Learn more about Loan Modification. If you can not refinance, it may be the best way to save your home today.
As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.