Synonyms: Alternative Mortgage, Exotic Mortgage
Definition: Mortgage loans which are generally more complex than traditional loans (adjustable rate mortgages and fixed-rate mortgages), and present a greater risk of negative amortization.
Though Nontraditional Mortgages may offer a borrower greater flexibility, the complex terms may lead to financial hardship and increased payment obligations in the long-term. Types of nontraditional mortgages include interest-only mortgages, piggyback loans, or mortgages with extended payback periods of 40 or 50 years.
See Also: Amortization, Negative Amortization, Adjustable Rate Mortgage, Fixed-Rate Mortgage, Interest-Only Mortgage
Definition: The opposite of amortization on a loan, where the total amount owed increases when you pay it as opposed to decreasing. This is a common feature of special offers and nontraditional mortgages, where an advertised minimum monthly payment may not cover the interest accruing on the loan and thus, add to your total amount load.
Consider if you were to take out a $30,000 mortgage with monthly interest of $250, but an advertised minimum monthly payment of only $150. If, in the first month you choose to make the minimum monthly payment, then you will owe:
$30,000 + $250 – $150 = $30,100
This is an increase of $100 and so the amount of interest on your loan will also increase, since you have now borrowed more money.
See Also: Amortization, Minimum Monthly Payment (MMP), Nontraditional Mortgage
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