Watch out for pre-payment penalties. I don't like prepayment penalties under any circumstance and would do my best to avoid them. If you are getting a great deal on a loan that has a prepayment penalty then try to keep it to a one-year period. The only time you pay the penalty with a soft prepayment penalty is if you refinance. Still, there are so many options out there, why be stuck with a lemon like a pre-pay.
Negative amortization is when the loan balance increases rather than decreases.
This is a dangerous game and is offered in exchange of a lower payment. The difference between what is being charged and the amount paid is added to the loan balance. You home should not be treated like a credit card. If the situation persists and home prices level off or even depreciate like they did 10-years ago, you may be unable to sell your home because you owe more than the value. You may also be unable to refinance the loan because you exceed the maximum loan to value limits.