Mortgage Types


Adjustable Rate Mortgage (ARM)
A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap.

Balloon Mortgage
Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.

Biweekly Mortgage
A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

Buy-Down
A type of mortgage which requires the buyer to pay additional discount points or make a substantial down payment in return for a below market interest rate. Another form of a buy-down is one in which the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates buy-downs may induce buyers to purchase property they might otherwise not have purchased.

Closed-End Mortgage
A mortgage principal amount that is fixed and cannot be increased during the life of the loan.

Convertible Mortgage
An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

Fifteen-Year Mortgage
A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

Fixed-Rate Mortgage
A mortgage whose rate remains constant throughout the life of the mortgage.

Graduated Payment Mortgage (GPM)
A fixed-interest loan with lower payments in the early years than in the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.

Home Equity Loan
A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.

Open-End Mortgage
A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan.

Reverse Annuity Mortgage
A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.

Second Mortgage
A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.

Variable Rate Mortgage (VRM)
A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap



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