An interview with a mortgage broker: Tricks of the Trade Part 2
Loaning with just one hitch is one of the most disturbing loan trends he talks about that became very popular between 2001 and 2005. Otherwise known as negative amortization loan, this is when a borrower can’t afford a high interest rate because the monthly payments are too high. To close the deal, the loan agent comes up with a monthly payment and interest rate that satisfies both the borrower and the lender. BUT, there’s just one hitch. They give the borrower a lower monthly payment based on a 1 percent or 2 percent annual interest rate, but the rate on the actual overall loan is much higher.