Alternative mortgage instrument (AMI)

The term alternative mortgage instrument (AMI) refers to any kind of mortgage other than a fixed-interest-rate, level-payment amortizing loan.

It can also be any mortgage instrument that is different because of the principal involved or the repayment terms. Examples of alternative mortgage instruments include adjustable-rate mortgages (ARM), shared-appreciation mortgages (SAM), graduated payment mortgage (GPM), growing-equity mortgage (GEM), rollover loans, and biweekly mortgages.

Adjustable rate mortgages are real estate loans in which the interest rate is adjusted or changes periodically to reflect changes in the market. The initial interest rate of adjustable rate mortgages are usually lower compared to other mortgage instruments, however, the interest rate goes up eventually.

Shared-appreciation mortgages also have very low interest rates with the interest rate at a fixed value. While it may seem that the lender will be giving away revenue with this scheme, they make up for the low rates by getting a share of the property value over time as it appreciates. The time period wherein the property value is reassessed is stated in the agreement.

Graduated payment mortgages (GPM) have average interest rates (compared to market rates) but vary in payment/installment amounts. The initial installment amount is low and then increases after a specified period. This kind of loan is targeted at young professionals who currently have low incomes and so can only make low monthly installments, but has a good chance of having their salaries go up over time.

Growing equity mortgages (GEM) are like graduated payment mortgages wherein the installments go up little by little periodically. The difference is that the excess payment goes into a retirement fund for the borrower, which earns money.

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