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4 payment options mabdala2006@hotmail.com 12-10-2006
Posted by mabdala2006@hotmail.com on December 10, 2006, 6:02 pm
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 Is it true that if you send a extra money with your minimum payment
option every month, you'll be able to not have a negative amortization?!


Posted by Jeff Strickland on December 10, 2006, 9:21 pm
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 No. You _could_ add funds to a neg am payment and still incur a neg am on
the loan. To avoid the neg am, you have to make the Interest Only payment.

Firstly, if you make the Minimum Payment, you will have a neg am. If you
make a larger payment, you select the Interest Only option. If you make a
larger still payment, you will pay off in 30 years, and the highest payment
will pay off in 15 years. You can add funds to the 15-year payment if you
want and pay off earlier, but if you could do that you would not be a good
client for the loan product or, more accurately, the loan product would not
be good for you.

Why would you make the Min Payment + extra, but not enough to make the
Interest Only payment?

You do not have a neg am UNLESS you make the Minimum Payment, or any payment
that is less than the Interest Only. In theory, you _could_ make the
Interest Only + extra, but below the 30-year payment. This would result in a
principle reduction, but the pay off would still come in 30 years because
they "recast" the principle balance every month to make the payments work
out to 30 or 15 years. Interest Only payments pay the interest that is due,
therefore no interest is added to the principle -- there is no neg am. The
Negative amortization comes when the payment received does not cover the
interest that is due.




> Is it true that if you send a extra money with your minimum payment
> option every month, you'll be able to not have a negative amortization?!
>


Posted by mabdala2006 on December 11, 2006, 9:53 pm
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Thank you Jeff!!!
I guess I was wasting money!!!
A friend of mine once told me that the only way this kinda payment
would work out without being "too heavy for your pocket" would be to
send the minimum payment plus let's say $300,00 more towards principal.
That would be less than paying the I/O option and could help in not
having the negative amortization! But I guess she was wrong and I was a
foul!
By the way, do you know if it can be fixed for 3 to 5 years or it's
just another lie??!!
Thanks for your time!!!


Jeff Strickland wrote:
> No. You _could_ add funds to a neg am payment and still incur a neg am on
> the loan. To avoid the neg am, you have to make the Interest Only payment.
>
> Firstly, if you make the Minimum Payment, you will have a neg am. If you
> make a larger payment, you select the Interest Only option. If you make a
> larger still payment, you will pay off in 30 years, and the highest payment
> will pay off in 15 years. You can add funds to the 15-year payment if you
> want and pay off earlier, but if you could do that you would not be a good
> client for the loan product or, more accurately, the loan product would not
> be good for you.
>
> Why would you make the Min Payment + extra, but not enough to make the
> Interest Only payment?
>
> You do not have a neg am UNLESS you make the Minimum Payment, or any payment
> that is less than the Interest Only. In theory, you _could_ make the
> Interest Only + extra, but below the 30-year payment. This would result in a
> principle reduction, but the pay off would still come in 30 years because
> they "recast" the principle balance every month to make the payments work
> out to 30 or 15 years. Interest Only payments pay the interest that is due,
> therefore no interest is added to the principle -- there is no neg am. The
> Negative amortization comes when the payment received does not cover the
> interest that is due.
>
>
>
>
> > Is it true that if you send a extra money with your minimum payment
> > option every month, you'll be able to not have a negative amortization?!
> >


Posted by Jeff Strickland on December 12, 2006, 6:50 pm
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> Thank you Jeff!!!
> I guess I was wasting money!!!
> A friend of mine once told me that the only way this kinda payment
> would work out without being "too heavy for your pocket" would be to
> send the minimum payment plus let's say $300,00 more towards principal.
> That would be less than paying the I/O option and could help in not
> having the negative amortization! But I guess she was wrong and I was a
> foul!

That would be "fool". <wink>


> By the way, do you know if it can be fixed for 3 to 5 years or it's
> just another lie??!!
> Thanks for your time!!!
>
Whether or not the rate can be fixed is dependent upon the specific product,
you have to ask the customer service staff this question. Prepare yourself
for an answer of "No."

You weren't wasting money because you avoided going negative by that amount.
But, paying the I/O payment would have caused you to not go negative at all.
In a NORMAL 30-year fixed loan, the bank takes its interest that is due,
then takes any impounds (for taxes and insurance), then aplies the entirety
of the remaining payment to principle reduction. In a fixed rate loan, you
always know the payment amount that is due, say $2000. This includes the
interest, impounds, and principle. ANY additional funds you supply with your
payment are required to be applied to principle reduction. It is far better
to make an overpayment of mortgage than to make an extra payment, here's
why. If you make an extra payment, they take interest and impounds first,
then they reduce principle. BUT if you made a doulbe payment on the same
check, they take interest and impounds, then apply all of the remaining
amount to principle reduction. When you write the extra check, some of the
funds do not reduce principle, but when you make a doulbe payment on one
check, you get greater reduction of principle.

A Neg Am payment is merely a payment that falls short of paying the interest
that is due. If you add additiional funds to the Neg Am payment, all that
happens is you go negative by a lesser amount.




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