Alternative Mortgage Instrument

AAA

DEFINITION of 'Alternative Mortgage Instrument'

A broad category of mortgages that vary from fixed-rate, fully amortizing mortgages in terms of amortization schedules, interest rate structure and payment options. These mortgages often make it easier for individuals to purchase real estate by reducing monthly payment amounts and increasing the amount the borrowers are able to finance.


INVESTOPEDIA EXPLAINS 'Alternative Mortgage Instrument'

Adjustable-rate mortgages, adjustable-rate mortgages with initial fixed interest rates, mortgages with temporary buydowns and mortgages with negative amortization features all fall under the alternative mortgage instrument category. Alternative mortgage instruments are popular in high-cost areas. Because most alternative mortgage instruments are indexed to short-term interest rates, they also thrive during economic conditions under which short-term interest rates are meaningfully lower than long-term interest rates.

RELATED TERMS
  1. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  2. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  3. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  4. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  5. Interest-Only Mortgage

    A type of mortgage in which the mortgagor is only required to ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Savings

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
  6. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  7. Stock Analysis

    How Two Harbors' Derivatives Work?

    Mortgage REITs, like Two Harbors , have cut their dividend payments as interest rate trends have eaten into profitability under the business models.
  8. Options & Futures

    The Perks of Trading Coffee Options

    As more people begin to trade coffee, we explain how coffee options work, who uses them, what drives valuations, and the risks and rewards.
  9. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  10. Stock Analysis

    How Chimera Investment Bear The Brunt Of REITst?

    Following the financial crisis, REITs that specialized in investing in mortgage-backed securities produced huge gains for their shareholders.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center