Key terms

While working with your mortgage company, it’s important to understand the mortgage terms that may be used so you can have a better (and easier) discussion with your mortgage company.

Adjustable-Rate Mortgage (ARM)

A mortgage loan with an interest rate that can change at any time, usually in response to the market or Treasury Bill rates. These types of loans usually start off with a lower interest rate comparable to a fixed-rate mortgage.

Amortize

Paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.

Balloon Mortgage

A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of five or seven years).

Buy-down Mortgage

A mortgage loan in which one party pays an initial lump sum in order to reduce the homeowner’s monthly payments.

Convertible ARM

An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Debt-to-Income (DTI)

Debt-to-Income (DTI) is a calculation frequently used by mortgage companies when qualifying borrowers for a mortgage or a workout solution to resolve delinquency. It is calculated by comparing how much you pay on your mortgage(s) to your gross monthly income.

Click here to calculate your DTI

Default

A borrower is in default when they fail to meet the terms of their loan agreement. Usually this is based on failure to make payments on time.

Deficiency Balance

The difference between what a foreclosed home sold for and the remaining mortgage balance. The mortgage company may require you to pay the amount of the deficiency balance.

Delinquency

Failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or more days past due.

Equity

Ownership interest in a property. This is the difference between the home's market value and the outstanding balance of the mortgage loan (as well as any other liens on the property).

Escrow

An account (held by the mortgage company) where a homeowner pays money toward taxes and insurance of a home.

Escrow Analysis

A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home when they are due.

Forbearance

An agreement to temporarily suspend or reduce monthly mortgage payments for a specific period of time. The mortgage company will then postpone legal action when a homeowner is delinquent. A forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Learn more about Forbearance

Foreclosure

The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the homeowner is in default for a reason other than the failure to make timely mortgage payments.

Learn more about Foreclosure

Foreclosure Prevention

Steps by which the mortgage company works with the homeowner to find a permanent solution to resolve an existing or impending loan delinquency.

Hardship

A hardship is the reason why a homeowner is having trouble making their mortgage payments, such as job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than 6 months) or long term (more than 6 months). When contacting your mortgage company or a housing counselor for assistance, homeowners may be required to demonstrate/explain any hardship they are experiencing.

Hazard Insurance

Insurance coverage that pays for the loss or damage on a person's home or property (due to fire, natural disasters, etc.).

Home Equity Line of Credit

A way of borrowing money against the equity or assets that the homeowner has in the home to pay for things such as home repairs, college education, or other personal uses.

Loss Mitigation

When the homeowner and the mortgage company are working together to determine the appropriate option/workout solution to bring the mortgage current and avoid foreclosure.

Mortgage

A legal document that pledges property to the mortgage company as security for the repayment of the loan. The term is also used to refer to the loan itself.

Mortgage Company

Mortgage companies may originate (i.e., your lender) as well as service the loan. The lender who originated your mortgage may or may not service your loan. When the mortgage company services your mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance, generally manage your escrow accounts (i.e., they “service” your loan), and provide customer service and support.

Find your mortgage company's contact information

Mortgage Insurance

Insurance that protects the mortgage company against losses caused by a homeowner's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner's down payment is less than 20% of the purchase price.

Property Taxes

The amount a person pays to their local city/municipality and sometimes county, based on the value of their property.