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What's a deferred interest loan?

by michaelwallace from , . Jun 24th 2013 Reply


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Jun 24th 2013
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Steven Cook (stcookmortgage@gmail.com)
#39 ranked lender in Washington - 256 contributions

Michael --- a "deferred interest" loan is better known as a "negative amortization" or alternately, a "reverse mortgage" loan. This means that any payments that are being made are not sufficient to cover the interest (and obviously are not covering any principal). This results in the loan amount going up each month. In a reverse mortgage situation - this continues as long as the loan is in effect (there are NO required payments). In a "negative amortization" loan -- which are very difficult, if not impossible to find -- there would be a set period during which this could take place, before a normal amortization process would begin. Usually this would be 5 - 10 years of deferred interest, after which the new loan balance would be converted to a fully amortizing loan payment over the remaining 20 - 25 years.

Jun 24th 2013
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Heather Livingston (livihnw1)
#42 ranked lender in South Carolina - 12 contributions

When the monthly payment is prolonged or "deferred" until x amount of years. I.e. State Housing loans for down payment assistance are deferred for 3 years, meaning they are not in repayment until 3 years.

Jun 24th 2013
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Dave Metsker (DaveMetsker)
#37 ranked lender in Oregon - 2,317 contributions

A deferred interest loan is one where your payments are lower than the interest due for that month, which means the principal balance increases, instead of decreasing.

Jun 24th 2013
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Joe Metzler (JoeMetzler)
#2 ranked lender in Minnesota - 3,852 contributions

Who the heck is offering those these days???

Jun 24th 2013
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T.E. Sumner (T.E.Sumner)
#39 ranked lender in Texas - 3 contributions

That's the type of loan that got a lot of Californians in trouble. The monthly payment does not pay the full amount of interest owed each month. The deferred interest is tacked onto the loan balance and eventually must be paid. Typically in 5 years the loan is re-cast to higher balance including the deferred interest and the payment changes to amortize the new balance. Because the loan is negatively amortizing (rising instead of falling) we also call these loans negative am loans.

Jun 24th 2013
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James Barath (JamesBarath)
#10 ranked lender in Indiana - 351 contributions

Deferred interest loan simply implies that the interest portion of the loan payment is not due until some scheduled time in the future.

Jun 27th 2013
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