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converting negative-amortization loan to a regular loan |
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Can I convert a negative-amortization loan to a regular loan?
Loan terms vary and each agreement needs to be reviewed carefully. Talk to your lender about specific situations.
Negative amortization occurs when monthly payments on a loan are not enough to pay the interest accruing on the principal balance. The unpaid interest is added to the principal due.
Adjustable rate mortgages with payment caps and negative amortization are usually reamortized at some point so that the remaining loan balance can be fully paid off during the term of the loan.
This could necessitate a substantial increase in the monthly payment.
Most ARMs have a limit on the amount of negative amortization allowed,
usually 110 to 125 percent of the original loan amount. If the loan
balance exceeds this amount, the borrower has to start paying off the
excess.
Negative amortization can be avoided by paying the additional interest
owed monthly. ARMs that don't have payment caps usually don't have
negative mortization.
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Last Updated ( Tuesday, 29 July 2008 )
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