When applying for a basic Arizona home mortgage
loan, you obviously must repay the loan to the lender. The repayment
period of the loan is typically set over a certain time period with
a set amount being paid monthly for your mortgage payment. This process
is known as the amortization repayment schedule.
Arizona home
loan lenders work hard to compete for your business.
To make themselves more appealing, they will try to come up with unique
Arizona mortgage packages that make it easy for you to get into an Arizona
home that might be beyond your means. One of the techniques for doing
this is a strategy known as graduated repayment. With graduated repayments,
your initial loan repayments are for less than the total interest owed
on the loan. The excess interest than accumulates and is usually converted
into principal.
This process is known as negative amortization. Negative amortization
loans can look very attractive when you are trying to squeeze into a
home just beyond your means. When you sign up for a negative amortization
loan, you are gambling that the equity in your Arizona home is going
to accumulate faster than interest rates rise. If the equity gain doesn’t
keep up, you will eventually have a problem where you are making payments
on a home with no equity. When the amount owed on the mortgage exceeds
the equity in the home, your Arizona home has become pure debt.
An Arizona lender
isn’t just going to sit and let the principal on a loan accumulate
forever. To avoid this, the mortgage loan will typically carry a debt
cap at which point the loan automatically converts to a different loan
where you start paying the balance off or the loan may just come due.
You will either suddenly have payments you can’t make or have
to come up with a bundle of cash fast. For most homeowners, this leads
to default.
When looking for a home in Arizona, be sure to stay within your price
range. This will keep you in the proper mortgage loan range as well,
and keep you out of negative amortization.