Adjustable Rate Mortgage (ARM): A mortgage loan or deed of trust that allows the lender to adjust the interest rate. The rate change is agreed to at the inception of the loan.
Amortize: Repayment of debt with payments of both principal and interest calculated to pay off the debt at the end of a specified time period.
Balloon Mortgage: A mortgage with installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum, usually at the end of the term.
Buydown Mortgage: A mortgage with a belowmarket interest rate that results in lower monthly payments. A buydown is made by the lender in the form of “points” in return for money received from the builder, seller or homebuyer.
Cash for Keys: A deal a lender may make with a homeowner. The homeowner gets a cash settlement in exchange for vacating his/her foreclosed home and leaving the home in good condition.
Convertible ARM: An ARM that may be converted into a fixedrate mortgage within an agreed-upon time period. There is usually a fee when the loan converts.
Deferred Payments: Payments the lender agrees to postpone as part of the workout process when facing foreclosure.
Equity: The net value of an asset. In terms of your home, the difference between the value of the property and the amount you owe on the mortgage.
Escrow: Sometimes called impounds or reserves. Money or documents deposited with a third party to be delivered upon fulfillment. For example: a borrower deposits money with the lender to pay taxes and insurance on a property when they become due.
Fixed-Rate Mortgage: A mortgage where the interest rate and payments remain the same for the life of the loan: typically 15 or 30 years.
Forbearance: An arrangement in which the lender agrees not to take
legal action if a homeowner arranges to pay the amount owed on a mortgage by a specified date.
Foreclosure: A legal process where a mortgaged property is sold to recover the amount owed.
Refinance: The payoff of an existing loan with a new loan using the same property as security.
Repayment Plan: An arrangement in which the borrower makes additional payments to pay down the past-due amount while still making regularly scheduled payments.
Workout: Also called restructure. An alternative to foreclosure. Can include loan modification, short sales or forbearance.