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Defining Common Mortgage Terms

Last updated on January 31, 2021

Adjustable-Rate Mortgage (ARM)

A mortgage loan with a variable interest rate according to changes in the market or Treasury bill rates.


Repaying debt or loan in its entirety through scheduled installments over a specified period.

Balloon Mortgage

A mortgage loan allowing debtors to pay smaller sums on the loan before requiring a larger, lump-sum payment to pay off the remaining balance.

Debt-To-Income (DTI) Ratio

The ratio of a borrower’s regular debt payments to their regular income commonly used to determine whether a potential borrower is eligible for a mortgage or loan workout.


A deed is a legal contract that Identifies ownership of property or legal rights.

Deed In Lieu Of Foreclosure

The action in which the homeowner gives ownership of a title to the mortgage lender to avoid foreclosure; commonly referred to as “voluntary conveyance.”


The borrower fails to meet the terms of the loan contract.

Deficiency Balance

The mortgage debt that remains after a foreclosed home is sold to rectify an unfulfilled mortgage. Homeowners may retain responsibility for the remaining debt.


Ownership of the value in commerce, which could include your car, home or business.


An account in which a third party temporarily holds money, assets, or paperwork on behalf of a buyer or seller.

Federal National Mortgage Association (Fannie Mae) And Federal Home Loan Mortgage Corporation (Freddie Mac)

A high percentage of mortgages are now held by investors. The two largest investors that purchase mortgages on the secondary market are Fannie Mae and Freddie Mac. These “government-sponsored enterprises” (GSEs) were created by Congress to provide liquidity or capital in the housing market by purchasing mortgages. The originating lender must follow certain guidelines specified by Freddie Mac and Fannie Mae when qualifying the borrower for a loan, commonly called underwriting guidelines.

Fixed-Rate Mortgage

A mortgage loan with an inflexible interest rate.


An agreement between a mortgage lender and borrower to pause or reduce payments temporarily, stemming from the borrower’s proposal to satisfy overdue mortgage payments. Forbearance is often used by homeowners to avoid facing legal action because of delinquency.


The involuntary sale of a property in which the proceeds are used to satisfy the mortgage debt. Any remaining debt after the sale is referred to as the deficiency balance. Foreclosures are triggered when the borrower defaults on the mortgage loan.


Government-sponsored enterprises. See Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).


Any reason why a homeowner would struggle to make regular mortgage payments. Common hardships include losing a job, suffering a serious injury or illness, or facing a divorce. Mortgage lenders and housing counselors typically require proof of the hardship before making adjustments to the mortgage agreement.

Home Equity Line Of Credit (HELOC)

A loan or credit extension using the borrower’s home as collateral, often used for large purchases like college tuition or significant repairs to the home.

Interest-Only Mortgage

A loan in which the borrower is only responsible for paying the interest over a certain period.

Loan-To-Value (LTV) Ratio

A tool that calculates the mortgage rate for qualifying borrowers based on equity.

Loss Mitigation

A collaborative process between mortgage lender and borrower to satisfy overdue mortgage payments and avoid foreclosing the home.


An adjustment to a mortgage’s terms, typically involving the loan’s balance, interest rate or repayment period.


A legally enforceable agreement in which a borrower uses property as security for a loan from a mortgage company. “Mortgage” can also be used to reference the loan.

Mortgage Company

An entity that lends or services a mortgage loan. The initial lender does not always service the loan. Servicing a mortgage includes collecting the homeowner’s mortgage payments, paying taxes and insurance, managing escrow accounts, and providing a point of reference for the borrower for the loan.

NPV (Net Present Value)

The NPV test compares the net present value of the money the mortgage loan owner would receive if the loan was modified with what would be received if no modifications were made. If the servicer can expect a greater return from modifying the mortgage (the NPV of the modified loan is higher than the NPV of the loan before modification), then the modification is considered to be “NPV positive.”


This is a process that allows borrowers to reduce their interest rates in order to pay off their loan faster.

Servicer (Loan Servicer)

The loan servicer is the financial institution that collects the monthly mortgage payments. This institution has accountability for the management and accounting of the loan. The owner of the mortgage may also service it: however, many loans are owned by groups of investors. These groups will often have loan servicers work with homeowners on their behalf. Often times, lenders utilize loan servicers to handle all contact with homeowners.

Short Sale (Or Preforeclosure)

A collaborative process between a delinquent borrower and the mortgage lender to sell property through a real estate agent before foreclosure. A short sale typically involves selling the property for less than the mortgage debt.


A legal document stating who has ownership of your car, home or business.


The steps a lender must take to determine the homeowner’s monthly payment under HAMP.

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Our attorneys at Levitt & Slafkes, P.C., have decades of experience representing New Jersey residents with mortgage issues. Discuss your situation with a qualified lawyer today. Call us at 973-323-2953 to schedule a consultation.

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