What is the safest negative amortization loan?

As Americans struggle to make their monthly mortgage payments, many are still reaching for loans with negative amortization. Some of these loans have interest rates that adjust monthly, making them very risky. Is there a safe negative amortization loan?

This type of loan can include interest rates that adjust monthly, or are fixed for longer periods. The lowest possible payment will always coincide with the?shortest fixed period.

In the past year, the lending community has developed a “HYBRID OPTION ARM”. This loan has a five year fixed rate period. Unlike other negative amortization loans, the hybrid option ARM has a fixed payment and a fixed interest rate for the entire five year period (provided the negative amortization does not exceed the loan’s cap).

The way it works is simple: the loan is a standard 30 year loan with a fixed rate period of five years. The minimum payment, or negative amortization, is 3% less than the fully indexed rate. This loan is by far the safest of negative amortization loans because you are not subject to any rate changes for the full five years. If you reach the cap, or limit, the minimum payment will no longer be an option, but the interest rate will never change.

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