Alternative Mortgage Instrument (AMI)

Residential mortgage loan that differs from a fixed-rate, fully amortizing mortgage in the interest rate, the monthly or periodic payments, or the terms of repayment. These loans first became popular in the early 1980s, when high interest rates put buying a home beyond the reach of many first-time homeowners. Banks and savings institutions quickly introduced a variety of alternative mortgages, all designed to reduce the home buyer's mortgage payment or allow the buyer to finance a larger home. Included are the Adjustable-Rate Mortgage, which has an interest rate tied to an index; the Hybrid Arm, an adjustable-rate mortgage that has a fixed rate of interest in the first 3 to 10 years of the loan; and the Interest-Only Loan, in which the borrower makes only interest payments for the first several years. When mortgage interest rates in the years 2001 to 2005 declined to the lowest rates in forty years, home sales (and home values) soared to record levels. Financial institutions responded with even more alternative mortgage loans, such as loans with a choice of monthly payments (the Option Arm), low down-payment loans (up to 100% financing), and loans with forty-year amortization schedules. Some of these alternative mortgages were created for specific borrower situations, are costly to originate, and are seldom used. Alternative mortgages have their advantages and disadvantages; critics say their primary benefit, a more affordable housing market for middle-class home buyers, may be offset by rising home finance costs if borrower incomes do not grow at the same pace as mortgage payments. See also Balloon Mortgage; Biweekly Mortgage; 15-Year Mortgage; Growing Equity Mortgage; Hybrid Arm; Price Level Adjusted Mortgage; Piggyback Mortgage; Reverse Mortgage; Shared Appreciation Mortgage; Two-Step Mortgage.

Any mortgage other than a fixed interest rate, level payment Amortizing loan.
Examples:

Various types of AMI's:

• Variable Rate Mortgages

• Rollover Loans

• Graduated Payment Mortgages

• Shared Appreciation Mortgages

• Adjustable Rate Mortgages

• Growing Equity Mortgages