Assumable Mortgage

This is an agreement where the buyer of the home assumes the payment of an existing mortgage from the seller. This could be attractive for the buyer if the interest rate on the assumable mortgage is lower than the current market rate. Also, there are few closing costs. For the seller, an assumable mortgage may speed up the sale of the property. Unless specified, however, the seller could remain secondarily liable for payments.

Adjustable-rate mortgage (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index.

Balloon mortgage

Here the borrower makes initial payments at a lower fixed interest rate for a specified period of time, usually from three years to 10 years. After that period, the principal balance of the loan is due as a lump sum payment. Under certain conditions, however, balloon mortgages can be converted at that point to a fixed-rate or adjustable-rate mortgage.

Biweekly Mortgage

This is a fixed-rate mortgage where the monthly payment amount is split into two payments scheduled every two weeks. This results in 13 payments each year, which shortens the length of the 30-year loan to 18 or 19 years, and greatly reduces the amount of interest paid on the mortgage.

FHA mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

First mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-rate mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Hybrid Mortgages

These are mortgages that combine elements of fixed and adjustable-rate mortgages. One example would be Fannie Mae's two-step mortgage. It is a special type of ARM because it adjusts only once -- either at five years or at seven years. After that initial adjustment, the mortgage maintains a fixed rate for the remaining years of a 30-year repayment term. This new rate can never be more than six percentage points higher than your old rate. There are no limits on how much lower the adjusted interest rate can be. At the adjustment date, there is no additional refinancing cost, no forms to complete, and no re-qualification necessary.

Jumbo Mortgage

This is considered a nonconforming loan, because it exceeds the loan limit set by Fannie Mae and Freddie Mac, the two publicly chartered corporations that buy mortgage loans from lenders, thereby ensuring that mortgage money is available at all times in all locations around the country. The 1998 single- family loan limit is $227,150. If you need to borrow more than that, you will need a jumbo mortgage, which generally has a higher interest rate than "conforming" loans.

Second mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Seller Financing

This is an agreement where the seller of the home provides financing to the buyer. The buyer makes monthly payments to the seller instead of the bank. The promissory note is secured by the property. This type of financing often includes an assumable mortgage.

Two-step mortgage

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.