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ARM refers to Adjustable Rate Mortgages. These mortgages have an interest rate that is adjusted at specified intervals. The adjustments are based upon a certain index that must be available for the public to monitor. Some of the indexes they are linked to are the Prime lending rate, Treasury bills, etc. With these loans your monthly loan payment will change with each adjustment made. Often an ARM will have an adjustment cap and a lifetime cap. This means that the loan payment adjustment can only go up or down a certain percentage for each specified period and over the life of the loan.

You have to be very careful if you ever get an adjustable rate mortgage. Statistics that show that as many as 25% of adjustable rate mortgage loans are improperly calculated.

Real Estate Expert Investing Advice FSBO Homeowners House Buyers Sellers Realtors Agents Brokers You have to be "on your toes" if you ever get an adjustable rate mortgage. There have been statistics that show as many as 25% of the adjustable rate mortgage loans are improperly calculated by the lenders! When this happens, the borrower ends up paying the bank more money than the bank is owed. There are companies that provide a service that will properly calculate what your ARM loan payments and remaining loan balance should be. The fee for this service is usually inexpensive. If you have any doubts about an ARM loan, and you should due to the record of poor monitoring by the banks, then hire these services to make sure you're not overpaying on your loan.

GPM refers to Graduated Payment Mortgages. (Some people jokingly call these "jip‑um" mortgages). With these mortgages the payments are lower than the actual amortized loan payment would normally be. For example, let's say you have a 20 year amortized loan and the normal loan payment for that loan would be $1,000 a month. With a GPM the loan payment might only be $750 per month. However, the additional $250 that is needed to fully amortize the loan over the 20 year term is added to the outstanding loan principal balance. This results in negative amortization and the principal balance of the loan increases instead of decreasing over time. This growth continues until the loan payments are adjusted high enough to start to amortize the loan principal balance. In the early years of a graduated mortgage the loan payments made are not sufficient to cover the loan interest expense, nor for any loan principal payments. This loan interest payment shortfall is added to the loan balance amount. The purpose of this type of loan is that it enables the borrower to take out a loan with lower monthly payments in the early years. This will help someone get approved for a higher mortgage loan than they would if the loan had a normal amortization.

Blanket Mortgage is a mortgage covering at least two pieces of real estate as security for the same mortgage. A Blanket Mortgage can save a lot of time for someone who has multiple properties or vacant lots. It allows the borrower to use two or more properties for the security for one mortgage loan. The borrower will not have to take out separate mortgages for each property used as the collateral/security for the loan. For instance, let's say you bought a very large vacant lot and sub-divided it into six smaller lots to build a house on each lot. Instead of having to get a separate mortgage for all six lots, which would be very time consuming and expensive with the closing costs and points, you could group all of the loans into one mortgage. This is more efficient and easier to manage.

Package Mortgage is a mortgage that covers the Realty plus the Personalty. The Personalty is also called Chattels. A Package Mortgage includes more than the real estate since it uses both real and personal property to secure a loan. For example, a condominium that is sold with the appliances included in the mortgage could be called a package mortgage.

You have to be careful with assumable loans. Sometimes the original borrower is still held accountable for the repayment on the loan after someone else assumes it from him.

An Assumable Loan is an outstanding loan balance that can be "assumed " or taken over by someone else other than the person who originally borrowed the money. For example, let's say you took out an assumable mortgage loan on your house. If you decided to sell your house down the road, then the buyer could assume your remaining loan balance. The buyer will just continue making the monthly loan payments right where you left them off when you sold the house. Generally all the buyer will have to do is pay a small "assumption" fee to the bank and fill out a new loan application. The buyer may not have to be approved and go through an entire loan process like you did when you first borrowed the money. You have to be careful with assumable loans. Sometimes the original borrower is still held accountable for the repayment on the loan after someone else assumes it from him. If this were the case and the person you sold your house to stopped making payments on the loan, then the bank could come after you for the remaining funds owed to them. That's something that you certainly don't want to happen!

Conventional Loan is a loan from a bank that's not insured, like an FHA or VA loan, and it has market interest rates. The Veterans Administration (VA), the Federal Housing Administration (FHA), the Federal National Mortgage Association (FNMA) also known as "Fannie Mae," the Government National Mortgage Association (GNMA) also known as "Ginnie Mae, " and the Federal Home Loan Mortgage Corporation (FHLMC) also known as "Freddie Mac," are all organizations that function on their own in the Secondary Mortgage Market. The purpose of the secondary market is that these organizations buy the mortgage loans from banks. They then package a group of loans together and sell them off to investors in the bond market as Mortgage Backed Securities. The benefit for the banks is that they get to replenish their funds after they sell off some loans in their portfolios. This is why banks have many of the current requirements for appraisals, termite inspections, etc. They need this documentation in order to meet the requirements to sell their loans on the secondary market. See section The VIP's - HUD, FHA, FNMA, GNMA, and FHLMC.

A Land Contract is a document representing an installment sale. A Land Contract is also called an Installment Sales Contract. This refers to a sale of a property that does not pass the title to the buyer until all payments are made and the full purchase price is paid. For example, let's say you were selling your house and the buyer wanted to "assume" your existing mortgage loan. If your loan was not an assumable loan, then your lender would make you pay off the loan at the closing before you could pass clear title to the buyer. However, you could sell your property on a land contract and not tell the bank about it. The way it would work would be the buyer would take possession of the house but he wouldn't receive the deed or title until your mortgage loan was paid off and you had received the full purchase price for the house. You can agree to almost anything for the terms of any payments.

However, it must be noted that a land contract is usually against the rules and agreements of any existing mortgages on a property and it should not be used to sell or buy a property. The current mortgage holders usually have signed mortgage note saying that they will be paid off in full when the property is sold. Even though the deed or title does not pass to the new buyer at the new closing on the property, it's still considered a "sale". If the existing mortgage holders ever found out about such an agreement, then they can call the mortgage due and payable immediately! If you didn't have the funds to pay them in full, they could begin a foreclosure proceeding.

Another drawback to a land contract is that the buyer of the property may have no way of knowing if the current deed or title holder puts a new mortgage on the property. The buyer also will not know if any liens are recorded against the property after he original closing and before the deed or title is eventually passed to the new buyer. Basically, it's a very risky way of trying to buy or sell a house and I wouldn't recommend you get involved with a transaction like that.

Negative Amortization refers to the type of loan payment schedule where the monthly loan payments do not fully amortize the loan. As a result, the loan principal does not get reduced with each payment. The interest is reduced with the payments as the principal balance increases. With a negative amortization loan, your monthly payment on a mortgage, such as an ARM (Adjustable Rate Mortgage) or a GPM (Graduated Payment Mortgage), is not enough to cover the loan interest expense and principal payment. This loan payment shortage is added to your remaining loan balance. For example, this situation arises when the adjustable rate mortgage has a payment cap but the interest rate on the mortgage has increased. A benefit of negative amortization is that your payment doesn't have to increase just because the interest rate on your ARM increased. An ARM loan payment cap doesn't mean that the lender can't pass along an interest rate increase. Eventually, with a negative amortization loan the loan payment will eventually adjust to a level to allow the loan to amortize over its remaining life. The increase in the monthly loan payment needed to repay the larger loan over a shorter time span can be substantial. If rates have increased too high, then refinancing the loan may not be a viable option.

Loan Principal is the remaining balance or amount of the outstanding loan that is left to pay off. This does not include the interest amount on the loan.

Loan Interest is the remaining balance or amount of the outstanding interest left to pay off. This does not include the principal amount on the loan. When you pay loan interest you are basically paying "rent" for the use of borrowed money.

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