Negative Amortization

With a big loan and hefty monthly payment on the rise, this family is already struggling and it is only getting worse.

QUESTION: Charlene is in a home that costs $1,800 a month. The balance is $310,000 and it’s on a negative amortization. They make $80,000 a year. They are $400 short each month. She isn’t sure of how to handle this, but Dave is.

ANSWER: Sell it. I hate to say that, but you need to sell it. On $80,000, that creates a take-home pay of $5,000 a month. If you refinance to a 15-year fixed rate, the payments will be $2,600 a month. That’s half the take-home pay, so that means this is a house you can’t afford.

You bought a house that you couldn’t afford on an adjustable rate, and that’s denial. This house isn’t a blessing in your life, it’s a stone around your neck.