House Refinance Center
Types of Mortgages and Common Loan Terminology        
Adjustable-rate mortgage (ARM)

In many cases the ARM offers the borrower
low interest rates and low monthly payments.
However, the initial period is generally six
months to three borrower low interest rates
and low that during the initial phase they will
save monthly payments. However, the initial a
substantial sum of money. There is a period
is generally six months to three high risk with
the ARM because after the years. The
thinking of many borrowers is "honeymoon"
period, the real rate sets in, and it is not
surprising to see the monthly mortgage
payment double, and it might even go higher.
With the ARM the key component is the
index. Many lenders use the prime rate as
their official index, others use the "LIBOR
rate. So, for example, they might set the ARM
at "prime plus 6%". This means that if the
prime is 4%, the rate will be 10%. Your rate
will always have a floor cap. Be sure to ask
your lender about all aspects of your
mortgage.
Fixed-rate mortgage

This type of mortgage is the most common. The
mortgage payments are the same for the life of the
mortgage. This allows easier budgeting and
planning for the borrower. Borrowers that choose a
fixed rate mortgage are planning to keep their
Hybrid ARM

A hybrid mortgage is a combination of part
Fixed and part Adjustable. There are Hybrid
ARMs the start as fixed then start as an ARM
and then convert to a fixed rate.
Option ARM

This choice of mortgage can be very costly.
Borrowers can choose the type of payment made
each month. There are four options, and they are
spelled out in in mortgage agreement:
- a minimum payment that doesn't cover interest
- an interest-only payment that doesn't reduce the
total loan balance
-a payment of interest and principal that pays off
the mortgage in 30 years
- a payment of interest and principal that pays off
the mortgage in 15 years.

Please be aware that making mortgage payments
that never covers all the interest, causes a
deficiency and as a result, the mortgage balance
increases. This results in negative amortization. In
other words your house is worth less than the
mortgage. We are assuming that home value are
static or declining.
Rate Cap

The limit on the amount an interest rate on an
adjustable rate mortgage (ARM) can increases or
decrease during an adjustment period.
Green Mortgage

A Green Mortgage, sometimes called an Energy
Efficient Mortgage (EEM) is a mortgage
sponsored by the federal government which gives
a credit to the homeowner to improve the energy
efficiency of the house. The mortgage process is
the same as in a regular mortgage , with one
important exception. An energy audit is required.
The mortgage may save you money due to lower
energy bills.
Annual Percentage Rate (APR)

The Annual Percentage Rate is a rate used so
that the borrower can compare different
mortgages. It is a very complex calculation utilizing the
interest rate and all the fees and costs associated with
the mortgage. But there are problems.

Many lenders and mortgage brokers do not compute
the APR correctly. You cannot get a precise APR
when early payoffs, prepayments and adjustable rate
mortgages are included. Mathematician and
economist will generally say "the effective APR".
Upfront fees paid by the borrower can further
complicate the computation.

The APR for a traditional second mortgage takes into
account the interest rate, points and other finance
charges. The APR for a Home Equity Line of Credit
includes the periodic interest rate alone. Points and
other charges are not included in the calculation.
Therefore, you cannot compare the second mortgage
with the HELOC.
Forbearance

A forbearance agreement is an agreement by the
loan servicer to postpone, reduce or suspend
payments due on a mortgage loan for a limited and
specific time period.
Balloon Payment Mortgage:

A balloon payment mortgage is a mortgage that
does not fully amortize over the term of the
mortgage. There is a large payment due at the
end of the term. You will find this type of mortgage
in commercial lending. However, we do find the
odd one in residential mortgages.

This is a high risk mortgage. And here is why. Let's
say that we have a $175,000 mortgage at 5.5% for
7 years. The monthly payment of $993.63 is based
on the 30 year amortization. At the end of 7 years,
the balance will be $155,427.80. To come up with
this amount of money the borrower will most likely
have to sell the house or refinance. Refinance
might not be an option if the borrower's credit
score has dropped substantially.

To hedge your risk on a balloon payment
mortgage, the borrower has to get a "reset option"
included in the mortgage contract.
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Recourse and
Non-Recourse
Loans

Recourse loans allow the lender to pursue the
borrower to recover the amount of the loan
when the borrower defaults. When the lender
takes the asset that secured the loan, his
collateral, and sells it, and a shortfall of funds
occurs, the lender can go after other assets
of the borrower. If there are no assets, he can
garnishee wages and freeze bank accounts in
order to collect the amount owed.

Non-recourse loans are riskier for the lender.
He can only go after the collateral that he
loaned money against. In a foreclosure, the
lender seldom goes after the borrower for any
shortfall. The borrower is in financial trouble
so there is hardly any assets to seize. If the
borrower had money he would never be
behind in his mortgage. Foreclosure is
expensive and very time consuming.

Legal action to collect money after a lender
forecloses on a property is a deficiency
judgment. A first mortgage on a primary
residence generally falls into the category of a
non-recourse loan.

You should contact a lawyer to see if your
loan is recourse or non-recourse. And also
contact your specific state for laws regarding
anti-deficiency laws. In most states
anti-deficiency laws only apply to purchase
money loans. These are loans made for the
actual purchase of the property.

Foreclosures are a bit tricky so always
discuss your situation with a lawyer.
Refinance mortgages, HELOCs and second
mortgages are usually recourse loans. These
are cash out transactions.