Terms pertaining to American

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

s include: Main two types Origination and Re-Financing *Origination: starting from the scrap, Ex, A person wants to buy a home and goes to the bank for the same will get loan of 80% of their LTV. *Re-finance: defaulted borrower can apply for the same refinancing procedure to re modify the loan term, interest rate.

Mortgage types

Adjustable rate mortgage A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.Wie ...

or ARM - A mortgage where the interest rate adjusts relative to a specified index + margin. E.g. COFI,

LIBOR The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is u ...

etc. * Hybrid ARM - An adjustable rate mortgage where the initial 'start' rate is fixed for some portion of time (3,5,7, or 10 years) thereafter the interest rate adjusts (yearly or bi-annually) based on the sum of a specified index + margin. E.g. 2/28 Arm, 3/1 Arm, 5/1 Arm, 7/1 Arm, 10/1 Arm, 3/6month arm, etc... *

Fixed rate mortgage A fixed-rate mortgage (FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the duration of th ...

or FRM - A mortgage where the interest rate and payment are fixed for the term of the loan. *

Negative amortization In finance, negative amortization (also known as NegAm, deferred interest or graduated payment mortgage) occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan ...

mortgage - where the payment may be less than the monthly accrued interest, and the outstanding interest is capitalized monthly into the loan balance. *

Balloon payment mortgage A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity.Wiedemer, John P, ''Real Estate Finance, 8th Edition'', p 109-110 The final payment is called a ''balloon pa ...

- A mortgage most commonly used in commercial real estate. The Balloon payment mortgage does not fully amortize over the term of the note, which leaves a balance due at maturity, known as a "balloon payment." *

Interest only mortgage An interest-only loan is a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period. At the end of the interest-only term the borrower must renegotiate anothe ...

- A type of mortgage where the borrower pays only the accruing interest on the principal balance. These payments on interest leave the principal balance unchanged.

Terminology

Yield spread premium A yield spread premium (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs, generally paid in origination fees, broker fees or discount points Discount ...

*A par rate is the lowest interest rate a borrower qualifies for, given by the lender. *Reset: interest rate and thus payments change periodically on ARMs.

Mortgage types

Terminology

See also