US Mortgage Terminology
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US Mortgage Terminology

Terms pertaining to American mortgages 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 or ARM - A mortgage where the interest rate adjusts relative to a specified index + margin. E.g. COFI, LIBOR 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 or FRM - A mortgage where the interest rate and payment are fixed for the term of the loan.
  • Negative amortization 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 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 - 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 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.

See also



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