Most Common Terms Used in Mortgages & Loan Processes
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By Zachary Romeo, CBCA
ZC
Zachary Romeo, CBCA
Head of Loans and Banking at MoneyGeek
Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production. Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.
ZC
By Zachary Romeo, CBCA
ZC
Zachary Romeo, CBCA
Head of Loans and Banking at MoneyGeek
Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production. Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.
Updated: August 21, 2024
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This common mortgage provision accelerates loan payments and requires immediate repayment of the outstanding loan balance, excluding interest. Acceleration clauses are usually triggered when a borrower misses too many payments; defaults on the mortgage; or otherwise breaches the contract.
With an ARM, the interest rate changes at a certain point, typically after three to five years. The interest rate is typically fixed for the first several years of the mortgage, often a low rate, and then changes on a monthly, annual or other set interval basis. When the interest rate changes, so does the interest portion of the borrower's monthly payment. The interest rate will change based on a specified index, such as the one-year Treasury bill or LIBOR. Example: A 5/1 ARM is a mortgage in which the fixed-rate period lasts for five years. After five years, the interest rate becomes adjustable and is calculated annually for the remaining term of the mortgage. If the new interest rate is calculated based on the one-year Treasury bill, for example, the lender takes the Treasury bill rate and adds the margin specified in the mortgage loan note. See Interest, Margin, Treasury bill and LIBOR.
Short for Alternative-A paper, this loan category is assigned to borrowers who are higher risk than A-paper but less risky than subprime. Alt-A borrowers often have good credit, but their loans may have higher LTV or DTI ratios, or the borrowers might have inadequate or limited documentation supporting their incomes. Fannie Mae and Freddie Mac do not purchase Alt-A loans. Compare A-Paper and Subprime.
The payment of principal and interest in regular intervals over a period to pay off a debt.
