Do fixed rate mortgage loans have negative amortization?
To The Mortgage Guys of Domus Mortgage, this is an interesting question. Most people's initial response would be, "Of course not," And they would be right - if that loan is paid off in its entirety using regular monthly payments, bi-weekly payments, extra payments of principal, or lump sum payments. In that case, the answer certainly is "No."
But, if you are like millions of other Americans who, on average, refinance your home loan every five years, then a case can be made that even fixed rate loans may carry negative amortization.
Please look at the below example to see how. It assumes that a particular homeowner has owned a home for 10 years (from 1997-2007), that the home has increased in value by the national average of 3% per year, that the homeowner has refinanced twice (every 4 years) over that time, and he or she is seeking to refinance one "last time" to take advantage of a fictional, special, low, fixed-rate of 3.50%.
As you can see from the example above, over a 10 year period, our sample borrowers have made payments totaling $187,506. Of that total amount, $39,784 went toward the principal of their three mortgages. That is 21% or $0.21 for every dollar paid. Our sample borrower also paid $147,720 in irretrievable interest to his or her lenders. Please note that with each refinance, not only did the borrower's balance increase, but he or she also extended the terms of the mortgage while losing equity position despite the fact that the home appreciated at 3% per year.
So, one might have a fixed-rate mortgage, but if that person is like millions of other Americans an refinances anywhere between once every 3 - 5 years, that borrower is already "deferring interest" in much the same way he or she would if the loan actually had "negative amortization." Again, The Mortgage Guys are not saying that the Pay Option ARM is the best loan for you. One should, however, explore all possibilities and not categorically exclude any program until he or she has a full understanding of said program.
Located in Rockland County, NY, The Mortgage Guys of Domus Mortgage are licensed in New York, New Jersey, Connecticut, and Florida. Please call us at 1-800-95-DOMUS or visit us on the Web at http://www.domusmortgage.com/ for a unique mortgage experience hearkening back to the days of yesteryear when business was conducted with a handshake and a smile. If you are interested in obtaining the best mortgage loan for you and your family with the highest quality costumer service, we hope to hear from you soon.
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First Rockland Financial is a division of Domus Mortgage Services, Inc., a Registered Mortgage Broker with the State of New York Banking Department, with a great reputation for honesty and customer service. Headquartered in Rockland County, First Rockland Financial has the express mission of catering to the needs of existing and potential homeowners in Rockland County, NY. First Rockland Financial has been formed to leverage the existing industry knowledge and contacts of the Company along with the experience it has gained while arranging in excess of $400 million in residential mortgage purchase and refinance loans to assist Rockland County residents in obtaining the best financing possible.
Moreover, as a lifelong resident, I, Steve Odierno, the President of the Firm, take great pride in our County. As such, all at First Rockland have been given the mandate to do their share to ensure that our Firm becomes part of the housing industry's solution instead of exacerbating the housing industry's existing problems in Rockland County. So, if you live (or are planning to live) or work in the County, we hope that you will give us the opportunity to earn your business. Should you be interested in purchasing a new home or refinancing an existing one in Rockland County, please contact us at 1-866-403-6687 or visit us on the Web at http://www.firstrockland.com/.
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