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Mortgage and Real Estate Glossary ~ N

Negative amortization

When the amount that you owe on a loan increases despite regular monthly payments. Negative amortization typically happens with an adjustable rate mortgage (ARM) that has a payment cap. This means that your monthly payment can only increase up to 7.5% from the last adjustment period.

Here's how this type of loan works: the lender gives you three options on how to pay your monthly loan payment.
Typically, you can pay either:
(1) the full amount that's due, which covers both the principal and interest
(2) the amount based on the payment cap
(3) interest only

If you select the second method, you are at risk of negative amortization - if the loan's interest rate shoots up, you owe more money than what the payment cap accounts for. This unpaid interest is then tacked onto your loan. So, your loan balance creeps up instead of shrinking. Similarly, with the third method, the amount that's not paid on the principal is added to your loan.

This type of loan makes sense for people and companies who have seasonal or staggered incomes, or for people who want more flexibility and can manage their finances with daily updated spreadsheets.
See: Adjustable rate mortgage, Payment cap

Net rental income

The total annual earnings from a rental property. If you rent out a home or part of your home, lenders will include how much money you receive from your tenants as part as of your yearly income. Normally, lenders will only apply 75% of this amount to your income - the remaining 25% is deducted to account for any possible vacancies that year.

Non-conforming loans

Any loan that allows you to borrow over a certain amount set by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac)
See: Jumbo loan,

Non-institutional lender

Any non-traditional lender, which is usually not strictly regulated by state or federal agencies. Commercial banks and savings and loan associations are not the only companies that offer loans to buy a home. There is a whole range of non-institutional lenders, such as mortgage companies, title companies, universities, pension funds and individual investors.
See: Mortgage banker

Non-liquid asset

Any item of value that can't be converted easily into cash. Investments such as real estate, bonds, cars or boats, are examples of non-liquid assets since they can take a long time to sell.

Note

A written promise to pay back money at a specific time.
See: Promissory note

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