Real Estate Mortgage

Real Estate Mortgage Information

A contract between a lender, usually a bank or savings and loan association, and a borrower for the purpose of purchasing real estate. The lender is known as the mortgager, and the borrower is the mortgagee. The loan is secured by the collateral of some specified real estate property and obliges the borrower to make a predetermined series of payments of principal and interest. The interest rate on the loan is known as the mortgage rate.

Investors may buy mortgages (trust deeds in some states). Some home mortgages are partially insured or guaranteed by the Federal Housing Authority (FHA) or the Veteran's Administration (VA), adding to the protection of the pledged property and the credit of the borrower.

Among the various types of mortgages are:

Adjustable Rate Mortgage (ARM)	A real estate mortgage agreement between a lending institution and a borrower in which the interest rate is not fixed but changes over the life of the loan at predetermined intervals. The variable interest rate on the loan is adjusted up or down according to the movement of a specified index, such as the prime rate plus 5%.
Balloon Mortgage	A mortgage that provides for periodic payments which do not completely amortize the loan at the end of the term. The remaining balance of the loan principal is due in one lump sum at the end of the term.
Building Loan	A loan for he construction of a building, usually providing periodic payments for specified phases. In many instances, a building loan may be converted into a mortgage at the end of the construction project. Also called a construction loan or interim loan.
Closed-end Mortgage	A mortgage that has no provisions for increasing the balance. Opposite of an open-end mortgage.
Conventional Mortgage	A loan based on the credit of the borrower and on the collateral for the mortgage.
First Mortgage	A lien on property that takes precedence over any other lien, such as a junior or second mortgage. Sometimes called senior mortgage, first lien, or first loan.
Graduated Payment Mortgage (GPM)	A mortgage designed for families who expect their income to rise. The most widespread use of the plan is with mortgages insured by the Federal Housing Administration. Monthly payments during the early years of a GPM are lower than they would be with a conventional mortgage. They rise gradually, according to a fixed schedule, over 5 to 10 years and then level off. Payments during the last years of the mortgage are higher than they would be with a conventional arrangement. The overall cost of the GPM is more than that of a traditional mortgage.
Junior Mortgage	A mortgage second in lien to a previous mortgage. Also called a second mortgage or a subordinate mortgage.
Open-end Mortgage	A mortgage that permits the mortgagor to continue borrowing from it, in amounts up to the original sum.
Purchase Money Mortgage	A mortgage issued in partial payment for real estate or other property that has a lien on the property purchased. A mortgage given by a grantee to the grantor in partial payment of the purchase price of real estate.
Renegotiable Rate Mortgage (RRM)	A short-term loan featuring an interest rate that is renegotiated periodically, such as every three to five years. The interest rate is adjusted to reflect market rates at the time of renewal. Sometimes called a rollover mortgage.
Seasoned Mortgage	A mortgage in which periodic payments have been made, for a relatively long period of time, and the borrower's pattern of punctuality is well-established.
Term Mortgage	A mortgage having a stipulated duration, usually under five years, in which only interest is paid. At the expiration of the term, the entire principal amount becomes due.
Variable Rate Mortgage (VRM)	A mortgage similar to a renegotiable rate mortgage (RRM) but with these important differences: There is no fixed renewal date. After the first year of the mortgage, the interest rate can be raised or lowered once a year. Rates are tied to the Federal Home Loan Bank Cost of Funds Index, which reflects the amount the banks have to pay for funds.
Wrap-around Mortgage	A refinancing technique used in times of increasing or higher interest rates in which the lender assumes payment of the existing mortgage and gives a new, increased mortgage to the borrower at a higher interest rate. As defined by its name, the new mortgage "wraps around" the original one. The increased amount is always second to the existing lien.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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