A Negative Amortization Florida Home Loan in this Market? Think Again

It’s a slow Florida real estate market. Nevertheless, there are advantages to buying a house.

But think twice if you were planning on applying for a negative amortization Florida home loan for such a purpose. Here’s why:

A negative amortization mortgage is an adjustable-rate home loan. Therfore, the borrower’s monthly payment remains fixed for a specific time, such as one year, three years, or even longer. Such Florida home loans can be a big help to home buyers because their monthly mortgage bills won’t increase for the agreed term.

However, because the interest rate adjusts periodically - while monthly payments remain fixed - the unpaid interest is added to the mortgage’s principal balance. In other words, instead of the Florida mortgage loan balance amortizing over the 30-year mortgage life, the balance amortizes “negatively” by increasing.

This can be acceptable, as long as the market value of the home is appreciating. Take a look around the economy, however. Many areas are struggling, prices are falling. If a property’s value does NOT go up as quickly as the “negative am” mortgage balance increases, the homeowner isn’t building any equity. The result is the “negative am” borrower will usually owe more on the mortgage than its original balance.

With all this in mind , negative amortization Florida home loans are typically bad for most borrowers. This is especially the case if appreciation has slowed down, which has been the case in many cities around the Sunshine State.