Are negative amortizing loans ever okay?
If you are in a growth region where homes have been undervalued and now seem to be catching up with the market, you might be able to purchase a home for $300,000 and then pay on a negative amortizing loan short term, tacking a modest $300 on to the principal each month. If you are able to make a few cosmetic improvements, then resell the home after a year for $400,000, then subtracting the additional principal of $3600 and cost of improvements, real estate fees and so on, you might walk away with a modest profit. The negative amortizing loan would allow you to maintain your cash flow and over a short period would be offset by the home’s appreciation in the current market. However, it could easily be a losing proposition if the market or your personal circumstances change. In other words, you need to be aware of and carefully weigh the risks. Another possibility would be the case of a young professional who wants to purchase a particular type of home, but is not currently making the inc
