Mortgage Glossary

Adjustable Rate Mortgage (ARM)
A variable rate mortgage or floating rate mortgage is a mortgage loan where the interest rate on the outstanding loan amount is periodically adjusted based on what is specified in letter offer.

Amortization
Literally to "kill off" the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.

Balloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single "balloon" payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.

Balloon Payment
The final lump sum that is paid at the end of the balloon mortgage.

Default
The failure to make payments on a loan.

Down Payment
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Early Exit Fees
A penalty for ending (full settelement) a mortgage during a lock-in period (fixed/discounted interest rate period). Many mortgage lenders in Malaysia charge a percentage fee (normally 3% or 5% and subject to a minimum amount) based on the original loan amount. Early exit fees are also known as exit fees or redemption fees.

Fixed-Rate Mortgage (FRM)
A mortgage where the interest rate does not change for the life of the loan.

Grace Period
A time allowed, for making late payments without a penalty.

Interest
Money paid for the use of money, usually expressed as an annual percentage.

Interest Only
A term loan arrangement calling for payments of interest only, not to include any amount for principal.

Interest Rate
The percentage of an amount of money that's paid for its use over a specified time period.

Loan
The principal, or amount of total borrowed money, that is repaid with interest.

Loan Amount
The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount.

Lock-in Period
A period normally with fixed or discounted interest rate prohibiting loan borrower to fully settle a mortgage. Exit exit fees are applicable in the event that the loan borrower ends the loan within this period.

Lock-in Clause
Clause in a loan agreement that states that the borrower cannot repay a loan prior to a specified date.

Maturity
The "Due Date" of a loan.

Mortgage
A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself.

Mortgagee
The lender in a mortgage agreement.

Mortgagor
The borrower in a mortgage agreement.

Mortgage Reducing Term Assurance (MRTA)
MRTA is used to protect against the outstanding balance of housing mortgage in the event of the loan holder’s unexpected death or TPD (Total Permenant Disability), the loan will be settled. The MRTA is a reducing term life assurance whereby the sum assured reduces in accordance to the scheduled outstanding loan amount.

Partial prepayment
Making a payment larger than the scheduled payment as a way of paying off the loan earlier.

Prepayment
Any amount paid so as to reduce the principal before the due date.

Principal
The amount of debt, not counting interest, left on a loan.

Refinance
The process of paying off one loan with the proceeds from a new loan, using the same property as security.