Negative Amortization adjustable mortgages are looked at as if they are inherently evil in the current economic situation we find ourselves in. However, if you look beyond the surface, a case can be made that this type of mortgage will be a good bet for the foreseeable future.
Lenders that offer this type of loan often base the rate on the Twelve Month Treasury Average index. This index is a rolling average of the monthly average of the One Year Treaasury Bill. As each month goes by, the rate for the oldest month in the average drops out, and the rate for the newest month is added.
Currently, the Twelve Month Treasury Average is at 4.076%. The current yield on the One Year Treasury Bill is 1.33%. What does this mean?
You are right - the Twelve Month Treasury Average Index rate is going down. If you can get a low margin, you are going to have a pretty good rate compared to what else is being offered in the mortgage marketplace.
Of course, discipline is required for this type of loan. I recommend either making the interest-only payment, or saving the difference between the minimum payment and the interest-only payment in a safe side account with a compounding return that outpaces the negative amortization accrued.
Before you make your next jumbo loan choice, ask your mortgage advisor about a negative amortization loan!
Do you need help with or a question about a mortgage? Call or text me at (650) 222-0386, or e-mail me.
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