Commonly Used Terms

Adjustable-Rate Mortgage (ARM)—is a mortgage with a rate that adjusts over the life of the loan. Compared to a fixed-rate loan, an adjustable-rate loan has a monthly payment that can change over time.

Amortization—the process of paying off debt by making regular payments over a set period of time, at the end of which the loan balance is zero.

Balloon Mortgage—a mortgage loan that requires a large payment due at the end of a set pay period.

Capitalization—process by which backed taxes or payments are added in to the full length of the loan.

Collections—the process where a lender attempts to collect past due amounts.

Convertible ARM—is an adjustable-rate mortgage that can turn into a fixed-rate loan during a set period of time.

Credit Report—a record of an individual or company’s past borrowing and repaying, including information about late payments and bankruptcy.

Debt Relief—a process by which a bank forgives some of the debt of a mortgage. If a homeowner owes more than 120% of the value of the home, banks will sometimes consider debt relief as one part of a loan modification.

Deed—a legal document that conveys ownership of a property.

Deferred Payments—loan payments that are legitimately postponed by a bank as part of a plan to avoid foreclosure.

Delinquency—failure to make a payment by the agreed upon due date.

Equity—ownership interest in a property after liabilities are deducted.

Escrow account—an account where a homeowner’s regular installments to cover taxes and home insurance are held in trust until due.

Fixed-rate Mortgage—a mortgage loan with a fixed rate that remains the same for the life of the loan.

Forbearance—the bank’s postponement of legal action when a borrower is delinquent.

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 borrower is in default for a reason other than the failure to make timely mortgage payments.

Foreclosure prevention—steps by which the loan servicer works with the borrower to find a permanent solution to resolve an existing or impending loan delinquency.

Hazard Insurance—insurance that is generally required under mortgage contracts to pay for loss or damage of a person’s home or property.

Home Equity Line of Credit—a way of borrowing money against the equity in one’s home.

Interest-Only Mortgage—a mortgage where the borrower pays only the interest and none of the outstanding principle balance on a loan for specified amount of time.

Investment Property—a property not considered to be a primary residence that is purchased in order to generate income, profit from appreciation, or take advantage of certain tax breaks.

Length of Loan—the defined repayment period of a loan. In order to lower a mortgage’s monthly payments, a loan modification may increase the length of a loan.

Lender Placed Insurance—insurance placed on a home or property by a lender to protect their interest in the collateral which secures the loan.

Loan Modification—process by which a mortgage is changed by redefining the terms of its note. A loan modification can reduce a mortgage’s monthly payment by reducing the interest rate of the loan, increasing the length of the loan, and/or restructuring the debt of the mortgage.

Mortgage Insurance—insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan.

Mortgage—a legal document that pledges property to a lender as security for the repayment of the loan.

Rate Reduction—the process by which the interest rate on a loan is reduced.

Refinance—the process of replacing an existing mortgage with a new one.

Repayment Plan—a plan where the borrower promises to pay down past due amounts on a mortgage while continuing to make regular monthly payments on a home.

Servicer—a firm that works on behalf of the lender in support of the mortgage, including collecting mortgage payments, ensuring payment of taxes and insurance, managing escrow amounts, managing communications with the borrower, and loss mitigation or foreclosure when necessary.

Title—the documented evidence that a person or organization has ownership of real property.

Work Out—a way to resolve or restructure a loan to prevent someone from going into foreclosure through a loan modification, forbearance, or short sale.