What is a negative amortization loan ?

Hey pal,

Have you ever looked at the multiple loan options being offered by lenders? Whenever I look at the list, my brain starts to recall the lyrics ‘confusion hi confusion hai, solution ka kuch pata nahi’. To solve my doubt, I learned the meaning. I will share what I learned about what is a negative amortization loan. 

It is a loan where you pay regular payments but the loan amount keeps on increasing. As you are not paying enough to cover the interest amount. If you avail of this loan, the bank will give you the option of making a minimum payment on a monthly basis. The unpaid interest is later added to the amount you owe.

The loan offers payment flexibility to the borrower.

• I don't think negative amortization real estate is good for a standard borrower. Given the interest rate on real estate loans is high. The borrower will have to pay extra to cover the principal amount and interest amount together. It will cause a financial burden. 

• In the end, you might end up paying more on your loan than the worth of your property. If you don't make the payments, you might be at the risk of foreclosure. 

• One of the most common negative amortization loan example is a student loan. The reduced payments often dramatically increased the loan amount. If you wish to avoid this loan type, you can refinance your property with a fixed-rate mortgage. 

I hope you have understood what is a negative amortization loan.

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