(Pronounced: NEGH-ah-tive am-ohr-tih-ZAY-shun) Negative amortization is the process by which a loan's principal balance increases on a month-over-month basis. This is in contrast to a "typical" amortization schedule in which the principal balance decreases. Negative amortization is an optional feature on some home loans. These mortgages are usually referred to by the brand names "Option ARM", "Pick-a-Payment", or "Payment Option ARM". Many industry veterans collectively call refer to these types of mortgages as "Neg-Am" loans. When a Neg-Am mortgage statement arrives each month, the homeowner can choose his preferred payment structure.
- Pay the minimum balance due only
- Pay the interest due only
- Pay the principal + interest payment on a 30-year amortization schedule
- Pay the principal + interest payment on a 15-year amortization schedule
- 100%-commissioned salesperson who want better control over tax deductions
- Owners of multiple investment properties who want better control over cash flow
- Investors who seek leverage in real estate and who clearly understand market risk