In real estate, a mortgage is a loan from a lender that is paid off with an interest rate over a period of time. Some of the most commonly used terminology for mortgages is discussed below.
Amortization is process of paying off a mortgage over time through regular payments. Learn more » What is Amortization?
A amortization schedule is a table or chart showing each payment on an amortizing loan, including how much of each payment is interest and the amount going towards the principal balance. They are also commonly referred to as amortization charts.
The principal is the amount of money borrowed in the mortgage loan. The interest rate (or annual interest rate) is used to determine how much money is paid back to the lender in each payment period. The term is the length of a loan usually measured in years or months.
A fixed rate mortgage is where the interest rate remains the same throughout the entire term.
The opposite of a fixed rate mortgage is an adjustable rate mortgage (ARM). This is where the interest rate may be adjusted over the duration of the loan. The length of time between each rate change is called the adjustment period. So a 5-year ARM indicates that the interest rate of the loan can change after 5 years. For more information, visit the Federal Reserve's Handbook on Adjustable-Rate Mortgages.
The annual percentage rate is the regular interest rate plus any additional financial charges, such as closing costs or other fees, that are expressed as part of the total interest rate.
A scheduled payment is the amount of money the person must pay back to the lender each month, year, or other time interval. The payment often includes a portion that goes towards interest while the rest is used to pay off the remaining balance of the mortgage loan.
Default occurs when a debtor is unable to pay back a loan either from missing scheduled payments or violating a condition of the loan. For information on avoid default and foreclosures, read the Federal Trade Commission's article entitled 'Mortgage Payments Sending You Reeling?'.