Mortgage

This clause states that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage, often within the first five years of the loan. The penalty protects lenders against losing interest income, and mortgage lenders are required to disclose prepayment penalties at the time of closing on a new mortgage.

An adjustable-rate mortgage (ARM) is a home loan with an interest rate that can fluctuate periodically based on the performance of a specific benchmark.

ARMs generally have caps that limit how much the interest rate and/or payments can rise per year or over the lifetime of the loan.

Mortgage interest, calculated as a certain percentage of the full mortgage loan, is the interest charged on a loan used to purchase a piece of property. Mortgage interest may be fixed or variable and is compounding.

A mortgage rate lock guarantees the current rate of interest on a home loan while a home buyer proceeds through the purchase and closing process—it protects borrowers from the potential of rising interest rates during the home buying process. Typically, a rate lock period ranges from 30 to 60 days.

A buydown is a mortgage financing strategy that lets a buyer obtain a lower interest rate for at least the first few years of the mortgage or possibly its entire life. Buydowns can save homeowners money on interest over the life of the loan. A buydown may involve purchasing discount points against the mortgage loan, which may require an up-front fee.

If you purchase a home with a down payment of less than 20% of the home's cost, you will likely need to pay for private mortgage insurance (PMI). This insurance protects the lender, not the borrower, against potential losses should the home fall into foreclosure. Borrowers can remove PMI when their equity in the home surpasses 20%.

A conventional mortgage is simply a mortgage issued by a private lender and not backed or insured by a governmental agency such as the FHA or the USDA.

Many conventional mortgages are also "conforming." This means they conform to the requirements set by Fannie Mae or Freddie Mac. These government-sponsored enterprises (GSEs) buy mortgages issued by lenders to help the market stay liquid and affordable.

A mortgage broker brings mortgage borrowers and mortgage lenders together but does not use their own funds to originate mortgages.

A mortgage broker finds the best lender for the borrower's financial situation and interest-rate needs and later assists with the application and underwriting processes.

Closing is the final step in home buying when the mortgage becomes official and the title transfers to the new owners. A closing agent, often an attorney or official from a title or mortgage company, oversees the closing process, which usually takes place at a title company or escrow office, although online or remote closing is becoming more popular.