What is a Mortgage?
What is a Fixed-Rate Mortgage?
What is an Adjustable Rate Mortgage (ARM)?
What is a Balloon Mortgage?
What is an interest only mortgage?
What is an APR?
What is a Convertible ARM?
What is an escrow payment ("Impounds", "Reserves")?

What is a Mortgage?
A mortgage is a financial contract whose primary purpose is to allow individuals or companies to buy residential or commercial property without paying the full value upfront. In return the borrower pledges the property to the lender as security against the debt, otherwise known as a lein.
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What is a Fixed-Rate Mortgage?
A Fixed-rate mortgage is a loan that has the interest rate and payment schedule set for the life of the loan, generally either 15 or 30 years. The advantage to the buyer is always knowing the principal and interest costs, thus removing any risk associated with changing rates. The disadvantage is that the bank will change a higher interest rate as the result of the added risk, assumed by the bank.
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What is an Adjustable Rate Mortgage (ARM)?
A mortgage instrument in which the interest rate adjusts periodically according to a predetermined index and margin. The adjustments change the mortgage payment up or down depending on current national interest rate levels. For example, many 1-year ARMs will have an initial interest rate for 1 year and then adjust on the second year, and continue to adjust annually over the life of the loan. The advantage of an ARM is a lower starting rate in exchange for taking a risk that rates may fluctuate in the future. Many ARMS will also cap how much the rate can go up or down.
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What is a Balloon Mortgage?
A traditional mortgage has level monthly payments that will fully repay the loan over the stated term, a Balloon Mortgage has level monthly payments, generally significantly lowe, and a lump-sum payment due at the end of the term. Ballon Mortgages are especially usefull if the borrower plans to sell the property at the end of the term, or plans to refinance every few years.
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What is an interest only mortgage?
An interest only mortgage is a form of balloon mortgage where the borrower only pays the interest on the principal borrowered. At the end of the term the entire principal is due.
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What is an APR?
APR stands for the Annual Percentage Rate. It is a tool used to provide a standard basis of comparison of loans offered by various lenders. APR includes the loan's interest rate, closing costs, and other fees such as points. An APR shows the total cost of a loan, including fees and points over the life of the loan, not just the interest due.
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What is a Convertible ARM?
A ARM with an option for the borrower to change the mortgage to a fixed-rate mortgage in the early years of the mortgage term. Usefull to avoid the risk associated with unexpected increases in interest rates associated with a traditional ARM.
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What is an escrow payment ("Impounds", "Reserves")?
A portion of the borrower's monthly payment held by the lender to pay for taxes, hazard insurance, mortgage insurance and other items as they become due.
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