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Amortized Loans

direct reduction loan

Fixed payment. The amount of principal paid increases and the amount of interest paid decreases over time. The monthly payment stays the same.

It reverses over time.

 
 
 

Balloon Payments

A large and final payment is set at a pre-determined date.

A partially amortized loan and other loan forms where the balance is not paid off by the end of the term.

Partially Amortized

A loan that is partially amortized while the rest f the balance is paid at the end of the loan term. Also known as a balloon payment

Interest Only Loan- Term Loan

A five- or ten-year interest-only period is typical.
After this time, the principal balance is amortized for the remaining term.

Interest-only loans represent a somewhat higher risk for lenders, and therefore are subject to a slightly higher interest rate.

 
 
 

Adjustable Rate Mortgage

Adjustable-rate mortgages (ARMs) usually start with a lower interest rate than a fixed-rate mortgage, therefore lowering monthly payments. This allows the borrower to qualify for a larger mortgage than would be possible with a fixed-rate mortgage. The interest rate on an ARM is adjusted periodically based on an index that reflects changing market interest rates. When the interest rate is adjusted, the monthly payment goes up or down.

 
 
 

Negative Amortization Mortgage

The quickest way to go underwater
Occurs in loans in which the periodic payment does not cover the amount of interest due for that loan period. The unpaid accrued interest is then capitalized monthly into the outstanding principal balance. The result of this is that the loan balance (or principal) increases by unpaid interest every month.

All NegAM home loans eventually require full repayment of principal and interest according to the original term of the mortgage and note signed by the borrower.

Most loans only allow NegAM to happen for no more than 5 years.

Underwater Mortgage

A mortgage where the balance of the loan is higher than whats the property is worth.

When a buyer pays discount points, the bank yield increases.