Mortgage

This clause states that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage, usually within the first five years of the loan. The penalty is a protection for lenders against losing interest income, and mortgage lenders are required to disclose prepayment penalties at the time of closing on a new mortgage. They are not legal on single-family FHA loans.

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 need private mortgage insurance (PMI). Note that PMI aims to protect the lender, not the borrower, against potential losses. There are four main types of mortgage insurance you can purchase: borrower-paid mortgage insurance, single-premium mortgage insurance, lender-paid mortgage insurance, and split-premium mortgage insurance.