Do mortgage lenders have a new trick up their sleeves to get you in financial hot water?
I noticed an interesting post on Noah Rosenblatt's excellent website, Urban Digs, regarding a new mortgage product making the rounds to offer troubled borrowers who can no longer obtain subprime and alt a loans. This product could be even more insidious. The key words are negative amortization.
"Given the nature of the situation, lenders know that most homeowners will choose the MINIMUM PAYMENT OPTION which costs the lowest amount! By choosing this option, the loan will negatively amortize, deferring interest to the principal of the loan. In a nutshell, you will end up owing way more than the original loan when you go and resell your home!"
I have said previously and will continue to reiterate the point, when taking out a mortgage to buy real estate, you need to understand the real cost of the loan and the potential future consequences of what you are planning to do. Take the time to read the fine print and if it appears to be to good to be true, it is.
While you may think you may be able to afford a more expensive home or even buy a home at all because the payment is low, that payment may not always stay low and in this case, by paying the minimum amount (which the lender is betting on), you will be paying interest on interest.
Please, please, pretty please, read Beware the COSI loan ... Next Subprime?