A deferred-interest mortgage is a type of home financing loan that offers the borrower an option to pay less than the interest due on its outstanding balance. Any shortfall in the interest payment is then added to the loan's principal, leading to negative amortization.
Negative amortization refers to an increase in a loan's outstanding balance due to periodic debt service payments being insufficient to cover the required interest charges. This generally occurs with indexed loans where the interest rate can be adjusted without altering the monthly payment amount.
An Option ARM (Adjustable-Rate Mortgage) is a type of mortgage loan that allows borrowers to select from multiple payment options each month, enabling flexibility based on financial circumstances. These payment options typically include fully amortizing payments, interest-only payments, and minimum payments that can lead to negative amortization.
A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable-rate mortgage at any one adjustment period, which can lead to negative amortization if the payment does not cover the interest due.
A Qualified Mortgage (QM) is a home loan that adheres to the guidelines set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, designed to mitigate the risks associated with mortgage lending and prevent practices that led to the financial crises like the 2008 credit crunch.
A Reverse (Annuity) Mortgage is a type of mortgage designed primarily for elderly homeowners with substantial equity in their homes. The lender periodically pays an amount to the borrower, with the loan balance increasing over time due to interest and periodic payments, ultimately resulting in negative amortization. The nonrecourse loan is repaid from the proceeds of a future sale of the home.
