Reverse Amortization? Oh My!!!!

There is a popular mortgage product that is being marketed as a low price mortgage, but in all reality it's very expensive. It's called a reverse amortization loan. This loan offers the client three payment options. For example, if you borrowed $250,000.00 from a bank at a rate of 6.25, your monthly principle and interest payment would be $1539.29, your interest only payment would be $1302.09. When you make an interest only payment you are not paying down the principle. Now lending institutions are offering a third payment option. When you receive your payment coupons you will be given three options. The options are listed below:

1. Principle and interest $1539.29
2. Interest only $1302.09
3. Flex payment $651.05

Part of your principle and interest payment is credited toward your principle and interest only just pays the interest on the loan without paying any principle. The Flex payment option credits the $651.05 to your interest only payment and the other half of the interest only payment is actually added to your principle balance. When you take a reverse amortization loan you are actually adding to your balance when you make the minimum monthly payment. These are very rarely a good product for most people. It is a niche product, but some brokers and lending institutions attempt to take advantage of people by offering teaser rates or payments. Tomorrow I will let you know how to calculate and interest only payment. Make it a great day!