Negative by any other name.....

A mortgage company visited my office the other day touting their newest entry in the mortgage field, surely to be demanded by every consumer in the country. With this new program, a borrower has three payment choices; Pay the 1% Contract rate, pay a 5.00% Interest Only rate or pay the fully-indexed rate. Cool, huh?

A little short on cash this month? Heck, why not just pay the 1% and move on? Or maybe feeling a little gutsy and want the 5% Interest Only option? Wow, lenders sure are nice these days, aren't they?

About two minutes into the presentation, I interrupted, "Wait a minute, is this 'Neg Am?""

"It can be," said the mortgage rep. "Uh-huh," I said. "I thought we shot Neg Am loans in the head about ten years ago."

Neg Am, or Negative Amortization, means that yes, you can pay the 1% interest rate, but if you don't pay the difference between the 1% and the fully indexed rate of 5.00%, then the remaining balance gets added back to your loan principal. Meaning that if in fact you paid only the 1% each month for the first year, at the end of that period you'll actually owe more on your mortgage than you originally borrowed.

Neg Ams really have no business in the industry. "Payment Option" is just putting lipstick on a pig.