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Home Appraisal Tips & Advice
California Home Values and Property Taxes: Are the Laws What They Should Be?December 22, 2008
California is once again rethinking Proposition 13, the law that bases home property taxes on the purchase price of a house. Will a new property tax law pass? California Home Values Are Falling: Can There Be an Upside?
September 30, 2008
Home sale prices are down and most people have seen a loss of home value in their neighborhood. Can there be a hidden benefit? Selling Your Home Successfully in Today's Market
September 8, 2008
Yes, the home selling market has slowed in the past year; however, houses are still being purchased on a daily basis. What is the secret to successful home selling? Understanding How Negative Amortization Impacts Your Home Equity
By Karen LawsonHome Worth Columnist
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Adjustable rate mortgage (ARM) loans that reset or adjust to higher interest rates can create difficulty for homeowners who don't understand how ARM loans work. Another often misunderstood concept is the capitalization of unpaid interest.
Unpaid interest from low initial mortgage payments that is added to your mortgage principal is called capitalization, which produces negative amortization. In cases where homeowners make very low down payments, this type of loan can potentially erode or eliminate home equity. Of course, real estate market trends also impact home worth and home equity.
Your Mortgage Balance and Home Worth: Keys to Home Equity
Home equity is the difference between what your home is worth and how much you owe on your mortgage. To get an idea of how negative amortization is affecting your home equity, you need an estimate of current home value. You can use a free home value calculator tool online to get an approximate home value. Then, check itemized mortgage statements from your lender, which should show how much you have paid and your new mortgage balance. If your principal balance is increasing each month, you have a loan with negative amortization. If property values are declining in your area, it may be a good idea to contact your lender and request a loan modification to eliminate further negative amortization. This will probably increase your payments, but will also stop further increases in your mortgage balance.
About the Author
Karen Lawson is a freelance writer with extensive experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.