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Pitfalls of Negative Amortization on Adjustable Rate Mortgages Revealed on GuideToLenders.com

(PRWeb) February 12, 2007 -- Just in time for tax season, GuideToLenders.com features timely advice about adjustable rate mortgages (ARMs) and negative amortization loans--and their impact on homeowner's personal finances. The GuideToLenders.com article titled "Is Your ARM Broken? Refinancing Adjustable Rate Mortgages in 2007" discusses the pitfalls of ARMs that are negative amortization loans (http://www.guidetolenders.com/calculators/article-armbroken.jsp).

GuideToLenders.com is an online consumer resource for broker and lender information. The articles at GuideToLenders.com can help homeowners evaluate whether or not to refinance their mortgage loans before interest rates change. About $1.5 trillion of adjustable rate mortgages are expected to reset by the end of 2007, according to the Mortgage Foundation. About $600 billion to $700 billion are expected to be refinanced into new loans.

ARMs became popular with homeowners as interest rates dropped to historic lows over the past decade. But some ARMs feature a negative amortization, which means borrowers pay an artificially low mortgage interest rate that is below the actual interest rate of the loan. As a result, the amount of the loan actually increases over time, and the amount homeowners pay could rise even more if the loan resets.

"Historically, the major purpose of negative amortization has been to reduce the mortgage payment at the beginning of the loan contract," according to Jack M. Guttentag on his Web site, Mortgage Professor. "The downside of negative amortization is that the payment must be increased later in the life of the mortgage. The larger the amount of negative amortization and the longer the period over which it occurs, the larger the increase in the payment that will be needed later on to fully amortize the loan."

The GuideToLenders.com article guides homeowners to examine the following items to determine if they should refinance their adjustable rate mortgage (http://www.guidetolenders.com/calculators/article-armbroken.jsp):
•    Is the mortgage interest rate due to reset this year?
•    How long do they plan to keep the property?
•    Does the current loan have negative amortization and a rising loan balance?
•    Is there a prepayment penalty on the mortgage loan?

Tax season is an ideal time for homeowners to review their overall finances. GuideToLenders.com can help consumers learn more about loan products such as adjustable rate mortgages and make educated decisions about refinancing mortgage loans.

GuideToLenders.com is a consumer resource featuring guides on how to find the right lender or broker to provide options to best suit consumers' needs. The site has a variety of free tools and tips and provides an easy way to find multiple lenders to help consumers. Products offered by the lenders/brokers include new home financing, refinancing, home equity line of credit and debt consolidation loans. To find out more, visit http://www.GuideToLenders.com.

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