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	Understanding Negative Amortization Mortgages Have you seen those ads for the mortgages with 1% interest rates? Watch out for the catch!

It sounds like a mortgage deal too good to be true: your mortgage company allows you to reduce your monthly payments to the point where you're actually paying less than the current interest charges due. Or, you see all those ads in the paper for mortgages with interest rates at 1% or so. What kind of mortgage is this? It's called a negative amortized mortgage, or NegAm, and if it sounds too good to be true, that's because it is. The money you save on interest now will cost you more later. These mortgages are also known as Option ARMs. You will know them when you see rates as low as 1% advertised by lenders. Typically, monthly mortgage payments are comprised of interest, which is a charge for the use of the mortgage money borrowed, plus a sum that goes toward the principal and reduces your actual debt. At the beginning of the mortgage term, most of your monthly payment is interest, and a relatively small amount goes toward the principal. Over time, the proportion gradually reverses, and the amount that goes toward your principal increases, while the interest you pay decreases. A NegAm is a type of Adjustable Rate Mortgage (ARM) that allows you to pay less than the full amount of interest due every month for a set period of time, usually up to 7 years. The start rate may be 1% or 1.5% or some other very low number, and the minimum payment is based on using this rate over a 30 or 40 year period. Each year, this minimum payment goes up by 7.5% until it matches what the full payment should be. Let's say that your normal monthly mortgage payment is $1,000 and that $900 goes toward interest and $100 goes toward principal, which is typical in the beginning years of a mortgage. With a NegAm mortgage, your monthly payment on the same loan could be $500, which would go entirely toward interest. But you'd still owe $400 in interest to make up for the balance of the $900 you owe for the month. The $400 in interest is added to the principal of your loan, and you start paying interest on it, too. So at the end of the month, you will actually owe more on your house than you did at the beginning of the month, and you will be paying interest on this increased amount until you retire your mortgage.	Still, negative mortgage amortizations can make sense in certain circumstances. Let's say you have to take a break from work or run into an unexpected expense, but know you'll be on sounder financial footing in the future. Or, you work on commission and need the payment flexibility that these loans can provide. A negative mortgage amortization can allow you to put some money toward your mortgage interest and keep your home. Once you're back on your feet, you can arrange to increase your monthly payments to make up for the interest you couldn't pay earlier, and even pay it all off in one shot if you have the money. Remember, with an Option ARM mortgage, you can make the NegAm payment, a full interest payment, or payments that include some principal. The other reason to use these loans is if you know that your income will go up and you need to purchase a home that is more expensive than you can afford with a fully-amortized mortgage. If the value of your home rises at at least 5% per year, your net equity will still INCREASE, even with a NegAm mortgage. The risk is, of course, that your finances won't improve on schedule and you'll eventually be faced with a bigger mortgage you can't afford and a tough decision about selling. Remember, lenders will not let the loan balance go up forever. In most cases, when the balance reaches 110% of the original balance, the loan can get "recast" meaning the below-market payment goes away and you have to make fully amortized payments over the remaining 30 years. At this point, the mortgage payment can jump drastically, as instead of amortizing the loan over 30 years, the higher balance will be amortized over a term of 20 to 25 years. Many homeowners find that they can not then afford the payments, and have no equity with which to refinance the mortgage. A negative mortgage amortization can also be used to speculate on real estate. You can use one to live in a house inexpensively, while the value increases. You could then sell at a profit and use part of the proceeds to pay off the mortgage. But if the house doesn't appreciate, you are stuck with a great big mortgage that may make the home impossible to rent without going in the red each month.	So before deciding on a mortgage, talk over the pros and cons of this type of mortgage with me. While it can help you cope with a temporary shortage of funds, or get you and your family into a bigger and better home, it does have its risks. Watch Out For Rates That Seem Too Good to be True. I wanted to let you know about something that can really cost you a lot of money. It is called Settlement Surprise. Its possible you have been talking with other brokers, and hearing how good their rates are. In fact, they even put it in writing in something called the "Good Faith Estimate" or GFE. Well, you need to know that a GFE is only as valid as the integrity of the person who created it. There is no law that states that the mortgage company has to hold itself to the fees that were stated on the GFE. A loan officer can put down ANYTHING he or she wants, as far as the interest rate, points (or lack thereof), underwriting fees, title insurance premium and so on. You sign this and think that you really took that loan officer to the cleaner. Well, here is what REALLY happens. The loan officer takes that application, changes it to reflect the true interest rate (padded with his fees), corrects the other fees and then the broker submits it to the lender. The lender processes it and simply states that a corrected 1003 (mortgage application) be signed at settlement. A week or so later, you get a call stating that the deal is done, but there was a slight problem. Due to something in your credit report or the loan-to-value, the interest rate is a lot higher than the loan officer thought, or new fees have been added. Now, what do you do? You have already paid for the appraisal and are expecting either the cash you are trying to get, or you have not paid the credit card bills you are trying to consolidate. So, you go to settlement, and sign off on everything. Now, who took who to the cleaners? To protect yourself, give me the opportunity to validate the other quotes you are getting. I will share with you a little secret on how you can find out if the other company is telling you the truth, or if you are in for settlement surprise. If you call my office, I will tell you exactly how to smoke out a misleading quote, so you will get the best deal you can on your mortgage.		About My Services I would like to help you with the task of refinancing your mortgage. To do this, I am able to do the following for you: Evaluate your credit and mortgage payment history Advise you on the various types of mortgage programs Resolve any issues on your credit report that can affect your mortgage. Provide you with a complete refinance savings analysis Make sure you have all the required loan documents Provide you with a Good Faith Estimate of closing costs Keep you informed as to changes in mortgage interest rates Get copies of all your mortgage and other loan pay-offs Co-ordinate all aspects of settlement or escrow, including title search, appraisal, paperwork and other services At Your Company Name, we offer mortgages for most buyers, including ones who are self-employed or who have damaged credit. We have lenders who offer 100% financing meaning no down payment for qualified buyers. We also offer mortgages with start rates as low as 1%, making it easier to pull cash out of your home. If you have any questions about how I can help you purchase your home, please call me at Company Phone #.