Information on Mortgages

This Market Business News information hub provides information on mortgages and links to articles with more comprehensive explanations. Basically, the term refers to lending or borrowing money to buy a real estate property, such as a house.

Adjustable-Rate Mortgage – a type of home loan with ‘adjusting’ interest rates, i.e. they can fluctuate. When the central bank raises rates, the mortgage rate will probably rise too. British people tend to call it a ‘variable-rate mortgage’.

Balloon Mortgage – a home loan with small monthly payments over a period of several years, ending with either one very large installment or a few large ones. Also called a balloon payment mortgage or a balloon loan.

Chattel Mortgage – this is not a home loan. The borrower puts up a movable personal property as security on a loan. Chattel could be machinery, cattle, a car or boat, or any other possession that can be moved. The lender owns the chattel until the debt is settled.

Endowment Mortgage – a home loan that also includes an endowment (life insurance) policy. When the loan term ends the policy is used to pay off the remaining debt. In the 1980s, this type of mortgage was popular in the UK and Ireland.

Federal Home Loan Mortgage Corporation – a government-sponsored enterprise (GSE) that trades in mortgages on financial markets, the aim being to make more money available for home buyers. Known colloquially as Freddie Mac.

Federal National Mortgage Association – another GSE that purchases and guarantees mortgages that meet its funding criteria. Mortgages are guaranteed, even if the mortgagor (borrower) defaults. Known colloquially as Fannie Mae.

Fixed-Rate Mortgage – the monthly installment payments on this type of mortgage do not change, because the interest rate is ‘fixed’. Households on a tight budget and individuals who prefer stability and predictability like this type of home loan.

Government National Mortgage Association – also known as GNMA and Ginnie Mae. It is a government-sponsored enterprise that was established in 1968. Its aim was to get more Americans to own their homes. It guarantees investors prompt payment on principal and interest on MBS (mortgage-backed securities).

Graduated Payment Mortgage Loan (GPM) – a home loan that starts of with low monthly payments. Gradually they increase over time to a set level. Younger borrowers, especially those who expect their earnings to grow over time, may find this type of mortgage suitable.

Growing Equity Mortgage – a type of home loan which has a fixed rate of interest and monthly installments that increase over time. There is no negative amortization associated with this type of mortgage. The first installment is an amortizing payment.

Guaranteed Mortgage Certificate (GMC) – a bond that is supported financially by a mortgage. GMCs have been issued by Freddie Mac since 1975. Interest and principal are paid twice yearly, and it has a guaranteed average life.

Home Equity Loan – often called a ‘second mortgage’. The borrower uses his or her real estate property as collateral.

Jumbo Mortgage – a home loan that offers more than a conventional mortgage. It does not meet the rules and limits laid down by Freddie Mac and Fannie Mae. The majority of jumbo mortgages charge higher interest rates compared to conventional ones.

Loan Modification – this term refers to changes made to an existing home loan, usually because the borrower is having trouble keeping up with payments. It is different from refinancing.

Mortgage – a loan used to buy real estate that is secured on the property being bought. A mortgage could also be any other type of loan where the borrower puts up his or her house as security.

Mortgage-Backed Securities – also called MBS. These are bonds that are supported either by a single mortgage or a mortgage pool. The borrower’s payments end up going to the bondholder.

Mortgage Bond – a bond in which the issuer has granted the holder a lien against the property (pledged asset). If the borrower fails to pay back, the bondholder can sell the asset.

Mortgage Protection Insurance – this is a policy that covers the borrower if he or she cannot meet the monthly payments due to sickness, job loss or accident. It is also called mortgage payment protection insurance. Consumers are advised to shop around before choosing one, because prices vary considerably.

Reverse Mortgage – a special kind of loan, available just to people aged 62 years or more. It allows the homeowner to convert a portion of the equity of his or her house into cash. In this type of loan, the bank pays the borrower, instead of the other way round.

Secondary Mortgage Market – is the purchasing and selling of existing mortgages, which are typically bundled together and traded as mortgage-backed securities.

Subprime Mortgage – a type of home loan given to borrowers with a bad credit rating, who would not be able to qualify for conventional mortgages.

Variable-Rate Mortgage – a home loan in which the interest rate is not fixed – it will fluctuate, usually in response to a change in the base rate set by the central bank. In the US, the term adjustable-rate mortgage (ARM) is more commonly used.