 Important Home Mortgage and Foreclosure Terms You Need To Know
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.Buy-down Mortgage: A mortgage with a below-market interest rate that results in lower monthly payments. A buy-down is made by the lender in the form of “points”in return for money received from the builder, seller or homebuyer. It can be 'temporary' lasting for two or three years, or 'permanent' for the life of the loan.Cash for Keys: A deal a lender may make with a homeowner or tenant of a foreclosed property. The homeowner or tenant 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 fixed-rate 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.Debt To Equity Ratio: The percentage (ratio) of a homeowner's monthly gross income that goes toward paying debts. DTIs include house payment (interest and principle), property taxes, hazard insurance premiums, and association fee payments. The total of these combined are often referred to as PITIA. Lenders further refine DTI ratios as 'Front End' or 'Back End.' Front-End DTI Ratio is calculated as follows: [monthly house payment (principle and interest)] + [property taxes] + [homeowner's hazard insurance] + [condo or association fees if any] / [gross monthly household income] Back-end DTI Ratio is calculated as follows: [monthly house payment (PITIA - the front end DTI as discussed above)] + [second mortgage, home-equity loans or home-equity lines of credit payments if any] + [credit card payments] + [auto loan or lease payments] + [alimony] + [any other payments on credit accounts or loans] / [total gross monthly household income] 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: 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.See also: 
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