In our sample, such contracts accounted for 25 percent of homebuilder loans originated during 2005-08.12 The distinguishing characteristic of non-amortizing contracts is that they allow the borrower to make a lower payment initially compared with, say, a conventional fixed-rate
amortizing mortgage. The ability to lower early payments is particularly pronounced in the case of the so-called negative amortization (or option ARM) contracts that allow payments to be less than the interest charges.
The initial five years of the loan will be interest-only and then convert to an
amortizing mortgage over a 30-year schedule.
The strict interpretation of acquisition indebtedness may discourage some homeowners from
amortizing mortgage debt quickly.
After all, the fixed-rate, 30-year, fully
amortizing mortgage was a new product at some point.
The transaction certificates represent the beneficial interests in a 20-year, fixed-rate, fully
amortizing mortgage loan secured by 105 self-storage properties located across 35 states.
Planning for the long term, this cooperative chose a 25 year fully
amortizing mortgage which closed at an interest rate of 9.37 percent.
Both Table 1 and Table 2 assume a rather conservative resource commitment to setting up and
amortizing mortgage loans.
The loans included in this transaction are fixed-rate, generally 30-year term, fully
amortizing mortgages, and were underwritten using rigorous credit standards and enhanced risk controls.
"We're starting to see an increase in delinquency rates in our IO book of business," Smith says, and the delinquency rates are rising faster than for the fixed-rate, 30-year
amortizing mortgages. United Guaranty does not insure option ARMs.
While 40-year mortgages are
amortizing mortgages, they spread the amortization over a longer period, so that in the initial years the portion of the payment dedicated to principal is lower than it would be with a 30-year mortgage.
Because many of the new mortgage products put less emphasis on building equity than did traditional, fully
amortizing mortgages, Americans have lower levels of equity in their homes than ever before (see Figure 2).
