Danger of Deferred Interest Mortgages: Understanding the Risks of Negative Amortization Home Loans

Danger of Deferred Interest Mortgages: Understanding the Risks of Negative Amortization Home Loans

Published on: 27/08/2024

Negative amortization or "neg am" occurs when the minimum payment on a mortgage covers less than the monthly interest charged, causing the balance of the loan to increase instead of decrease. This can happen with negative amortizations loans like a payment option ARM, where payment choices can be calculated based on COFI - The 11th District Cost of Funds Index which demonstrates the average interest rate paid by certain banks in Arizona, California and Nevada or on MTA.

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A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov