My negative amortization loan?

Question

I have a negative am loan which i was tricked into getting by my broker but thats another story, anyways my wife loves this home and i do not want to sell it but im afraid i wont be able to afford it if i were to refinance at the current rate, i have 2 more years before i can refinance without a penalty and i currently have about 90k in equity. What can i or should i do?? whats a great loan thats out there that can help me out until i can better stabilize myself economically, my wife is going to school and works part time so i cannot afford a higher payment now, she should finish school in about 1 1/2 years and might be better off financially then. What is a good loan that can help me out and have a low payment and not negatively amortisize??

Answer 1

The advantage of a negative am loan is that it keeps your payments low, and it sounds like you need low payments right now. I think that your best course of action is to keep your current loan for the next two years until the prepayment penalty expires. At that point, your wife will be working and you'll be in a position to handle a larger payment. You will then be able to replace the negative am loan with a conventional loan that may have a higher payment but won't result in negative amortization. In the meantime, you have 90K in equity so you're not in danger of running out of equity. I think you may have made the right decision when you chose that negative am loan.

The only proviso to the above is this: in the unlikely case that the rate on your negative am loan is very high, then you could to reduce your payments by refinancing. But the current rate for a 30-year mortgage is around 6.4%, so your rate would have to be quite a bit higher than that to justify refinancing now.

Answer 2

By tricked do you mean you where aware that the loan negatively amortized and was told it was a okay for whatever reason and accepted it, or you got the loan and were unaware of the negative amorization? The difference is the government requires brokers to disclose those facts. If he didn't then it would be a violation of several federal statutes and I would file a complaint with your state's office governing financial institutions.
At the very least, you might be entitled to return of his fees.

If you were aware and fell for his bad advise then it still could be fraud depending on the circumstance. I would first contact the mortgage company and find out what programs they have that maybe more suitable. While on the phone find out if they would reduce or eliminate the prepayment penalties. Most companies don't want disgruntled customers and will try to assist you not to mention they make money on your refinance anyway.

If not, then there should be no reason that you couldn't begin adding extra payments to cover the negative portion without triggering a penalty. Negative amortization occurs because you are paying less than an interest only payment. If you increase the payment to what the interest amount actually is or more, than you would stop future negative amortization. Verify that you can do that just in case.

As far as what loan is best, that depends on your individual circumstances. There are all kinds of ARMs, interest only ARMS, power options loans where you can pick your payment type each month depending on your cash flow needs, etc. In your case, an interest only ARM for a 3 to 5 year cap then converts at the current rate at the time might be the answer. All points and conditions are negotiable but there are always tradeoffs. For example if you don't want a prepayment penalty then you are going to pay a slightly higher rate, etc.

Hope that helps.

Answer 3

If this very own loan has a first rate activity fee, you merely pay greater suitable than is needed, so as that your amortization isn't detrimental. initiate paying down the central, alongside with the required activity. If the fee is severe and you're 'underwater', then you definately're quite lots screwed.

Answer 4

I will suggest you revalue your property and go for a longer repayment term by way of re-financing. Don't go for a negative amortization because it puts you into a graver position.
Better than all this is - sell your beautiful and lovely house. Get back anything you can. Then start again without stretching yourself like a pauper.