With most mortgages, you make monthly payments that cover interest and some principal.
With a negative amortization loan, you don’t pay all the interest due each month. Unpaid interest gets added to the loan balance, and you pay interest on that interest. The balance keeps growing, even if you make regular payments.
This process can’t go on forever. Sooner or later, you will have to start paying all the interest due. Your monthly payments can suddenly skyrocket.
If you can’t afford the payments, you can wind up in foreclosure and be unable to sell the house.
Even if you can afford higher payments, a negative amortization loan will cost a lot more in the long run than a mortgage that requires you to pay all the interest due each month.
Before you take out a mortgage, read the fine print and ask questions about anything you don’t understand.
