With everyone taking a closer look at their mortgages, studying this mortgage glossary of terms will help you familiarize with its seemingly complicated jargon. Knowing what’s been written down in your loan is incredibly important, since these may be able to help you in securing the best possible deal for you and your family.
Mortgage Glossary of Terms
Adjustable-Rate Mortgage (ARM): This is a loan where the interest is not locked to one rate for the whole life of the loan. These types of loans may start with a low interest rate, but some people may be in for a surprise if the rates change drastically.
Amortization: This is the term for when you pay your monthly mortgage installments until your balance is zero and the debt is paid off.
Balloon Mortgage: This type of mortgage loan has a large payment due after a set amount of time (“upon maturity”).
Collections: This is a lender’s actions to collect past due payments.
Convertible ARM: This is a type of ARM where the interest rate becomes fixed for a specified time.
Deed: This document proves property ownership.
Deferred Payments: These are authorized delayed payments, usually part of a package to avoid foreclosure.
Delinquency: A delinquent payment is usually a loan that is overdue for 30 days or more.
Equity: This is the ownership interest after liabilities are deducted.
Escrow Account: This is an account where a homeowner’s payments to cover taxes and insurance are held in trust until the due date.
Escrow Analysis: This is when escrow accounts are reviewed to see if there is enough money in them to pay the taxes and insurance due.
Fixed-Rate Mortgage: This is a mortgage loan that has fixed interest rates which remain the same across the whole life of the loan.
Forbearance: This is the postponement of legal action when the borrower is delinquent. This is normally done by the lender when there are satisfactory terms for payment for the overdue amount.
Foreclosure: A property is said to be foreclosed when it is sold legally and the proceeds of the sale are used to cover the mortgage debt. This normally happens when the borrower has failed to pay the installments, and negotiations with the lender have failed.
Foreclosure Prevention: This refers to a servicer’s efforts to work with the borrower to resolve troubled mortgages. (See Work out).
Hazard Insurance: This is required insurance for mortgage contracts, and pays for damage or loss to one’s home or property.
Home Equity Line of Credit: This kind of credit can be used for repairs, college education and other uses. This is usually taken from one’s home equity (see Equity).
Interest-Only Mortgage: This is a type of loan where the homeowner pays only the interest of the balance of the loan for a specific time.
Investment Property: Properties that aren’t meant for primary residency but generate income, value from appreciation, or uses special tax benefits are considered properties for investment.
Lender-Placed Insurance: Insurance placed by a lender on the home or property to protect their interests concerning the collateral that secures the loan.
Mortgage Insurance: This protects lenders from losses through a buyer’s default on a loan. It is normally required if the downpayment is less than 20%
Mortgage: This document legally assigns property to a lender while the loan for it is being repaid. It can also refer to the loan itself.
Refinance: This happens when the old mortgage is replaced by a new one with renegotiated terms.
Repayment plan: This is when a homeowner promises to pay past due amounts on top of regular monthly payments.
Servicer: A servicer works for the lender to support a mortgage. They collect payments, ensure tax and insurance payments, manage escrow accounts, communicate with the borrower, and coordinates loss mitigation and foreclosure.
Title: This legal document proves ownership for property.
Work Out: This is the term for options to prevent foreclosure, like modification, forbearance or a short sale.
No doubt there are many more mortgage glossary terms and definitions, but armed with this beginner’s guide to the most common mortgage terms, you should be able to understand more how your mortgage can work for you.
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