Keep an eye on variable loan monthly statements

By Steve Dinnen

I see little purpose to negative amortization loans, which distresses me all the more after having recently gotten entangled in one. What about you?

A few years back I took out a home equity line of credit, or HELOC. The granting bank debited my checking account every month for a payment, and it seemed that, typically, most of that money was going toward a finance charge but at least a little was chipping away at the principal.

They mailed a statement every month, which I generally ignored because, well, things were on auto pilot. But I actually took time to read the latest statement, and from it I learned that after the latest payment my balance would be greater than before they grabbed that money. How so? Turns out this loan had wandered into negative amortization territory and will stay there until its 10th anniversary. With interest rates rising — the rate on our HELOC has jumped 40 percent since its inception — this could add up to a lot.

But there is a solution. I called the bank and asked that they debit extra funds every month to tackle the principal. They readily complied.

I blame myself for not noticing among all the papers I signed when the loan was issued that this could happen. Luckily I finally paid attention to the monthly statement and could take corrective action. With interest rates set to continue rising, you might want to check any variable rate loan you have to see that you’re keeping ahead of the situation.

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