Beware of Negative Amortization!
Don't be ashamed in admitting to be in the vast group of people who can't properly pronounce amortization!. Amortization simply means "to kill off, slowly." What a fitting word to describe the process of making payments to "kill off" a mortgage slowly – up to thirty years. The original balance of the loan (or the purchase price plus the associated fees) is added to the amount that you will pay in interest during the term and then divided amongst the periods within the term, called an amortization schedule.
"But if I am making payments," you say, "how can my amortization schedule become negative?"
Well, if you have an ARM (Adjustable Rate Mortgage), under certain conditions, your monthly payment may not adjust to adequately cover the adjustments of the interest rate. You pay some of the interest along with a portion of the principal; however, unpaid interest (arising from too small of an adjusted payment) is added to the balance of the loan. The accrued interest not only adds to the amount that you have to pay back, it also accrues interest. You can see how this quickly becomes a problem, a problem you might not even be aware is happening. Consult your loan provider about the loan you are considering to make sure your loan will not be subject to any threat of negative amortization.