Commercial Investing: Mortgages Defined
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The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.
This posting will focus on types of mortgages. A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.
Assumable Mortgage
An assumable mortgage is a financial and legal instrument that can be transferred from the original borrower to another future 
buyer without changing the terms. The future buyer assumes all obligations for the debt and may be subject to background checks as well as assumption fees as the mortgage cannot be transferred without consent of the lender. Assumable mortgages by definition do not include a “due on sale clause.”
Chattel Mortgage
A chattel mortgage is a financial and legal instrument that details a loan given to a borrower to purchase real estate. However, instead of the lender receiving a lien on the property, a lien on other non-real estate assets is used for collateral.
Closed-End Mortgage
A closed-end mortgage is a financial and legal instrument that clearly specifies the underlying loan may not be paid before the end of the loan term. Closed-end mortgages also require the bond holder’s permission if the underlying collateral is repledged.
Commercial Mortgage
A commercial mortgage is a financial and legal instrument that provides a loan for real property used for business.
Commercial Mortgage Backed Security (CMBS)
A commercial mortgage backed security is a legal interest secured by commercial mortgages. A diverse amount of loans for various property types and sizes are pooled and sold to investors.
Conventional Mortgage
A conventional mortgage is a legal and financial instrument that has a fixed interest rate that does not change throughout the 
loan. Conventional mortgages are not insured or guaranteed by the government.
Depressed Mortgage
A depressed mortgage is a legal and financial instrument with a loan market value lower than par value.
Growing Equity Mortgage
A growing equity mortgage is a financial and legal instrument that has increased monthly payments but has a fixed interest rate.
High Ratio Mortgage
A high ratio mortgage is a legal and financial instrument with a loan amount greater than 80% of the mortgage property’s value.
Hybrid ARM
The hybrid ARM is a combination of a fixed rate mortgage and adjustable rate mortgage. This financial and legal instrument provides that interest rates on the mortgage are stipulated and unchanging for a fixed period of time. After that period has expired, the interest rate rises to market rates or to a rate cap detailed in the agreement.
Mortgage
A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.
Mortgage Derivative
A mortgage derivative is a legal security that provides investor income from principal and interest payments on an underlying pool of mortgages. Examples of mortgage derivatives include mortgage-backed securities and mortgage pass through securities.
Mortgage Pass-Through Security
A mortgage pass through is a legal security that features a pool of loans on residential properties. The principal and interest payments are passed through to the investors on a monthly basis. Examples of issuers include Freddie Mac and Ginnie Mae.
Reverse Annuity Mortgage
A reverse annuity mortgage is a loan secured by the equity a borrower has accumulated in the property, by which the borrower receives scheduled payments from the lender or annuity. Reverse Annuity Mortgages are often used to increase liquidity.
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