Question

Compare and contrast a constant-payment fixed-rate (CPM) mortgage with a constant-amortizing

fixed-rate (CAM) mortgage. Why are CAMs not popular with consumers? Why did CAMs develop

before CPMs?

Answer 1

These are basically one in the same. contrast a constant-payment fixed-rate (CPM) mortgage is common types of mortgage loan offerings from lenders. This loan has a fixed-rate of interest over the life of the loan and constant-amortizing fixed-rate (CAM) mortgage is is one where the principal and interest monthly payment is the same (constant) throughout the entire term of the loan and the loan will be fully paid off when the last payment has been made.

Constant payment means your mortgage payment will not change. The opposite of this would be something like an adjustable rate mortgage ARM. As the name suggests, after a predetermined amount of time your rate changes which would then change your monthly payment amount.

A fully amortized mortgage means that by the time you make your last monthly payment you will owe $0 to your mortgage servicer. The opposite of this would be something like a mortgage with an interest only payment. With this type of loan you are not required pay down the balance of your mortgage each month. You only have to pay the amount of interest owed.

There are loans that do what’s called negatively amortize. This means the required payment does not even cover the amount of interest you owe for that month. So if you only make the minimum payment required your mortgage balance would actually go up.