Understanding common terms used in mortgages is crucial for anyone involved in buying a home or anyone who is facing a legal situation related to their mortgage, such as foreclosure.
In this blog, we will break down some common mortgage terms that will help you better understand the complex mortgage process.
Mortgage
Let’s start with the basics. A mortgage is a legal agreement between a borrower and a lender. It lets the borrower get financing to buy a property while using the property as the collateral for the loan. If the borrower does not make payments as agreed to in the mortgage, the lender has the right to take possession of the property through a process known as foreclosure.
Foreclosure
Foreclosure is a legal process that occurs when a borrower defaults on their mortgage payments or on some other term of the mortgage. The lender begins a foreclosure lawsuit to recover the outstanding loan amount by selling the property. There are many laws and regulations that govern the New Jersey foreclosure process. It is important to know that borrowers have legal rights and options during this difficult time.
Default
A default happens when a borrower fails to make their mortgage payments or fails to meet other terms contained in the mortgage agreement.
Principal and Interest
When you pay your mortgage some of the payment goes to principal and some of it goes to interest. The principal is the outstanding balance that is due to the mortgage lender. Interest is the additional amount the lender charges for lending you the money. Your total monthly mortgage payment consists of payments toward principal and towards interest.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage, also referred to as an ARM, has an interest rate that changes at predetermined times, such as once a year. The rate can go up or down depending upon economic factors.
Fixed-Rate Mortgage
A fixed rate mortgage has an interest rate that is the same throughout the entire mortgage term.
Amortization
Amortization refers to the process of paying over a mortgage over time by making regular monthly payments. In the first years of a mortgage, a bigger portion of each mortgage payment goes toward interest. In the later years of the mortgage, more of the payment made is applied to the principal.
Escrow
Many mortgage agreements include an escrow account. The escrow account is used to hold funds to pay for property taxes, homeowner’s insurance, and sometime private mortgage insurance. The lender manages this account on the borrower’s behalf to ensure that these expenses are paid on time.
Private Mortgage Insurance (PMI)
Mortgage lenders often require PMI when the borrower is making a down payment that is less than 20% of the purchase price of the property. PMI protects the mortgage lender in the event the borrow defaults on the loan. PMI can often be cancelled once the borrower’s equity in the property reached 20%.
Deed
A deed is a legal contact that identifies who owns a property.
Contact Us if You Are Facing Mortgage Foreclosure
Bruce Levitt, partner at Levitt and Slafkes is an experienced NJ foreclosure defense attorney who has been helping our clients stay in their homes for over 30 years.
Call us at (973) 323-2953 or contact us online to schedule a free consultation.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.