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An Investment Real Estate Strategy Unknown To Most Is A Negative Amortization Loan

If you want to make the most of your personal or investment real estate, you should consider a negative amortization loan. Mortgage amortization is basically mortgage balance reduction. Consequently, when a mortgage has negative amortization, the loan balance not only is not reduced, it actually grows. So, why should you consider this? Simple. It is a great way to invest money from real estate someplace else.

This is a very aggressive and fairly unknown approach to real estate investment. In fact, it is a method of investing that does not have to involve real estate, in usual way we consider real estate investing. In other words, a negative amortization loan can give you money to invest in areas other than real estate, and this is how many people use this type of loan.

Let’s assume your mortgage has a conventional loan that calls for a monthly payment of $800. If you refinance to a negative amortization loan, your payment may go down to $400 or less, leaving you $400 or more each month to invest. Now, keep in mind, your mortgage balance is actually increasing with this loan, because you are not paying the required interest, and it is being added to your principal balance.

However, imagine having an extra $5,000 to $6,000 each year to put into a high-yield stock or mutual fund. After five to ten years, this could turn into a very lucrative strategy.

Remember, it is important to consult with a financial advisor, before attempting this loan and this strategy. You might also consult with the wealth-building system, Winning the Mortgage Game.

By: Mark Barnes

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Posted in Investing · December 22nd, 2008 · Comments (0)

Negative Mortgage Amortization, Things You Must Know – Do Not Take a Home Loan Before You Read

A negative amortization loan is a loan where the monthly payment does not decrease your loan principal. In other words the payment being made doesn’t pay back the principal on the loan. In fact the payment being made doesn’t even cover the minimum monthly interest payment. As a result your home mortgage will increase overtime.

How does it work?

Well, your monthly payment is composed by the loan amount, interest rate, and the years that the loan will be paid back. Normally a mortgage payment will include sufficient money to be applied towards interest and principal, in order to effectively reduce the balance on the loan. In a negative amortization, you don’t even pay enough to cover the interest being charged by the bank.

What does negative amortization mean to you?

Since the payment in a negative mortgage doesn’t even cover the minimum interest charge, the amount that wasn’t paid gets attached to the principal balance (loan balance will increase with every payment). In other words, every time you make a negative amortization payment it’s like you’re taking out another loan on your home. When you amortize a loan it simply means that you’re paying it off, therefore the name negative amortization is given to this particular situation.

What is the practical use of a negative amortization?

The main purpose of this type of amortization is flexibility in payments. This type of amortization was designed with a certain type of borrower in mind. Normally this is a type of payment that is suggested for people without regular income, such as commission employees and business owners. The idea is that people without regular income might have a down month where making a full payment is not likely to happen, instead of missing a payment they would have the option to apply the minimum amount, avoid missing a payment, and add the rest to the back of the loan. On the opposite side, if they have a good month then making a bigger payment is also possible in order to catch up on the negative amortization months, thus allowing the borrower to pay off the principle balance.

Keep In Mind:

This type of amortization is not for every home owner, as time goes on and more negative amortization payments are made, the larger the amount of money that will be owed by the borrower to catch up the loan.

By: Alberto W Garcia

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Posted in Real Estate · September 25th, 2008 · Comments (0)

Help Me Understand Loan Amortization

The term ‘amortization’ shares its origin with the word ‘mortgage.’ Both come from the Latin root, ‘mort’ which means to terminate or kill. It should be every person’s goal to terminate or kill the balance on his or her home loan (mortgage); in order to accomplish this, a portion of each payment must go towards paying down the principal. Because the lenders charge interest, a portion of each payment also must go to them. In this article, I hope to help you better understand loan amortization.

Basically, loan payments are calculated by dividing the principal balance by the number of payments. Interest charges must also be added in to each payment, and therefore only a portion of each payment will apply to the principal. Each month the balance on the loan will decrease slightly. Because interest charges are a percentage of the balance, they also decrease each month. The payment amount remains constant, so it only makes sense that as more payments are made, a larger portion of each payment will apply to the principal. Amortization is this process of determining the payment so that a portion of each payment applies to the principal and a portion to interest charges.

There are a few types of loan programs that each amortizes a bit differently. There are adjustable rate mortgages (ARMs), fixed rate mortgages (FRMs), interest only loans (IO), and negatively amortizing loans to name a few.

An ARM is a loan with an interest rate that is fixed for a certain period of time, after which it becomes adjustable. Commonly, ARMs will have a period of 2, 3, 5, 7, or 10 years for which the interest rate and payment are fixed. When the “fixed period” is over, the interest rate may adjust up or down; consequently the loan will re-amortize causing the payment to also adjust up or down. For more information on ARMs, search this directory or visit the website below for my article entitled, “What’s best for me – an ARM or Fixed?”

A FRM will amortize at the beginning of the loan and remain constant throughout the life of the loan. The interest rate on a FRM never changes (hence the name), nor does the payment.

Interest only loans operate just as they sound. These payments are not technically amortized, rather 100% of all payments will apply to paying off the interest charges before any principal is paid down. IO loans can be helpful in some instances, but can be problematic in others. You should consult with an honest and ethical mortgage professional to determine if an IO loan is right for you.

Negatively amortizing loans (such as the MTA Option ARM) are dangerous loans that can be quite confusing to the common consumer. These loans, namely the Option ARM, typically carry payment options. One option is to pay a fully amortized amount; this means that each payment will cover a portion of the principal and the interest charges. The second payment option is an interest only option. And the third payment option is a very small amount (allowing consumers to feel as though they can afford a house that they really cannot) that does not cover all of the interest charges. The amount of interest that is not covered by this payment is simply added back onto the loan balance (negative amortization). As a borrower pays with this option, they will see themselves going backwards in their loan. For more information on the Option ARM, search this directory or visit the website below for my article entitled, “I’ve been paying on my mortgage and my balance went up!?”

By: Drew Tyler

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Posted in Real Estate · December 17th, 2007 · Comments (0)

Loan Calculation – Building An Amortization Table in Excel

Knowing how to build an amortization table will give you a good handle on your monthly payment for a loan and how much you will pay in interest over the course of your loan.

I use amortization tables a lot in both business and in my personal life. For business, I usually use it to determine a monthly payment or determine the actual interest rate of a loan. Often, a loan will include a monthly processing fee or a service fee upfront – really just another form of interest, but if you are comparing two loans, you need to know what your true cost of capital is.

In personal use, I use an amortization table to determine what my mortgage interest is for the purposes of calculating my estimated taxes. I also use it for determining what the payment will be on a car loan based on different loan terms, for instance.

Information you need:
Loan amount (example: $200,000) Interest rate (example: 6%) Loan term in months (for this example, we are saying 36 months)
Open Excel, in cell A-1, type ‘Interest.’ In cell B-1, type your annual interest rate. In cell A-2, type ‘Term’, in B-2, type ‘Payment’, in C-2, type ‘Interest’, in D-2, type ‘Principal’, in E-2, type ‘Outstanding’. In cell E-3, type your total loan amount. In cell A-4, type ‘1′. In cell A-5, type ‘=A4+1′. Copy and paste into cells in the A column below A-5 until you get A-39 (or so that the number in the last cell equals the number of months of your loan). In cell B-4, type a reasonable number for your payment, 1,000 for every $100,000 in borrowed money will work fine. In cell C-4, type “=E3*$B$1/12″. In cell D-4, type “=B4-C4″. In cell E-4, type “=E3-D4″. In cell B-5, type “=B4″. Copy cells C-4 through E-4 into cells C-5 through E-5. Copy cells B-5 through E-5, and paste them in every row from row 6 to the row 39. Select cell E-39. Select ‘Goal Seek…” from the Tools menu. In ‘Set cell:’, it should say ‘E39′. In ‘To value:’, type in ‘0′. In ‘By changing cell:’, type ‘B4′. Hit OK.

This will give you the exact payment and monthly interest and principal payments for your loan.

Remember if you change the term of your loan, the places where I have put ‘E39′ will have to be changed to the row where your last term month is.

Here is a sample amortization file. This is a very useful tool because it is simple, but not many people really know how to do this.

By: C. Worrall

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Posted in Computers And Technology · November 6th, 2007 · Comments (0)

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