Negative Amortization versus Reverse Mortgages

Negative Amortization (aka Neg-Am) loans, also sometimes called A.R.M.s or Option ARMs (Adjustable Rate Mortgage) are good for Cash Flow but really need to be understood by the client. They give 3 to 5 different payment options, with the lowest Option (usually) being one that doesn't really pay the Interest Only portion of the monthly payment, so you're actually deferring monies back ON TO your loan instead of paying it down. So your loan balance actually gets higher over time, sometimes significantly higher. The upside of these NegAm loans is that you have improved monthly Cash Flow in your pocket. You get to choose how to hang yourself.
Reverse Mortgages are typically for the elderly, where the loan absolutely goes "backwards." They're designed so that a person can enjoy the rest of the years in their home without making a payment. There are several ways to slice it up, but basically, the homeowner doesn't make a physical payment; the typical principal and interest payment come directly out of the equity in the property via an ever increasing first deed of trust (mortgage) that the bank holds. Terms and limits apply. For more info, contact me. Pat Townsley, Mortgage Consultant. www.PTRE.net toll free: 800-646-5527