Mortgage 101: Retirees Understanding the Basic Terms

Learning the basic terms of a mortgage can make the process a lot easier.
Learning the basic terms of a mortgage can make the process a lot easier.
Learning the basic terms of a mortgage can make the process a lot easier.

Buying a new home is full of excitement.  Discovering the perfect 55+ neighborhood, mapping furniture placement, and the thrill of meeting your new neighbors are just a taste of what new homeownership has in store. But then you sit down with your mortgage broker, take a look at the contract, and it might as well be written in Latin.

Understanding the basic terminology around mortgages is vital for new homeowners for understanding their rights, payment structure, and the value of their new investment. Here are common mortgage terms that will help anyone navigate the murky rhetorical waters of banker-speak.

Adjustable Rate Mortgage

An adjustable rate mortgage (or ARM for short) is a loan that has a fixed interest rate for a short period of time. After that period of time (typically one, three, or five years), the interest rate is based upon an index.

In the long term, an adjustable rate mortgage can be risky since the interest you pay is subject to the market. This type of mortgage is a great option for homeowners who do not plan on staying in their home for more than just a few years, since the rate for these years is usually lower than what one would get in a fixed-rate mortgage.

Annual Percentage Rate

APR for short, the annual percentage rate is the amount that the borrower will pay to the lender, usually determined as a percentage of the principal amount of the loan. Although the APR adjusts frequently, they usually range from 3.3% to 4.1%, depending on whether the loan is a 15-year or 30-year mortgage.


Amortization is a fixed repayment schedule in regular installments over a specific period of time, with each payment going towards principal and interest.


The estimated value of a home based upon a professional’s evaluation and an analysis of home values of the surrounding area. These valuations are conducted by a licensed appraiser who has passed the state’s licensing program.

Balloon Mortgage

A mortgage that allows borrowers a low monthly payment for a specified period of time, typically from three to ten years. At the end of this period, the borrower must pay the remainder of the principal balance at once (referred to as a balloon payment). In some situations, the borrower can convert the lump sum into a fixed-rate or adjustable-rate mortgage. Most homeowners, however, either sell their home before the payment is due or refinance their loans.


Equity is the difference between a home’s value and the amount remaining in the loan. Over a period of time, as the home’s value rises and the loan amount decreases, the equity in the home will increase as well.  Homeowners can take the equity to finance a loan.


Escrow is a strategy used when a buyer has certain conditions that the seller must meet before closing. The buyer will then deposit the payment amount for the house with a third party account, called an escrow account.

This works for both parties as the seller is assured that the buyer can afford the house, while the buyer can ensure that certain conditions are met (inspections, renovations, etc) before handing the money over to the seller. After all conditions are met, the amount in the escrow account is transferred to the seller and the title is given to the buyer.

Escrow is also used after the buyer takes ownership of the house and begins making mortgage payments. The lender will typically roll the cost of insurance and taxes with the monthly mortgage and hold that money in escrow. Once it is time to pay the premiums, the money in escrow is disbursed to the appropriate companies, and the lender can rest with confidence knowing that the owner can afford the home.

Fixed-Rate Mortgage

A fixed-rate mortgage, just like it sounds, is a loan where the interest rate remains the same throughout the life of the mortgage.  A fixed-rate mortgage is so common that it is often called a “vanilla wafer” mortgage loan and typically lasts for 15 to 30 years.

Although the interest rates for fixed-rate mortgages tend to be higher initially, it is not subject to market conditions like an adjustable rate mortgage and is highly favored for borrowers who don’t like risk.


When a borrower defaults on their loans, the lender can claim interest on the home and sell it at a public auction, applying the proceeds to the unpaid mortgage debt.

The process begins when a borrower has missed multiple payments and is given a Notice of Default (NOD). The borrower then has the option of either negotiating with the bank, paying the amount needed to keep ownership of the home, or selling their home for less than the principal amount of the mortgage, called a short sale.

Good Faith Estimate

A good faith estimate (or GFE) is the estimated closing costs that the lender must provide the mortgage applicant within three days of the mortgage application being submitted. The Good Faith Estimate can help the applicant to compare different offers and understand the monthly obligations associated with the loan.

Prepayment Penalty

This is a fee charged to borrowers who pay off a loan faster than the agreed-upon schedule. While some penalties can add up to thousands of dollars, most states place limits on prepayment penalties. The penalty rate is often set between two to four percent of the loan.

Two-Step Mortgage

This is a home loan that originates as a fixed-rate mortgage but is followed by one adjustment. This adjusted rate can either replace the original rate for the remainder of the loan or the borrower can opt for an adjustable-rate mortgage.

The two-step mortgage is often referred to by a set of seemingly unrelated numbers – 5/25, 7/23, 2/28, for example. A 2/28 means that the original rate will be effective for two years, adjusted, then locked in or transferred to an ARM for the remaining 28 years of the loan.


Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and
Details here.

Share this post:

We're here to help! (800) 928-2055

Call us to speak with a customer service representative.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting Message/data rates may apply. I also agree to’s Privacy Policy and Terms of Use.

The Best Places to Snowbird in 2021

We’ve gathered 25 of the best places for snowbirds, including cities in Florida, Arizona, California, Texas, South Carolina, and Nevada. For each entry, we’ve also provided a list of recommended 55+ communities in the area. If you’re ready to find your own winter retreat this season, here are some of the best places to consider.

Atlanta, Georgia is a great place for 55+ active adults.

30 Things to Do in Atlanta, GA

Not only is Atlanta the capital of Georgia, but it’s also known as “The Capital of the South” for its central location, rich southern culture, and vibrant arts scene. Many active adults choose to retire in Atlanta in Northern Georgia for its warm-weather climate and tax-friendliness, but one of the top benefits is the abundance of things to do.

The entrance sign at the Polo Club at Mountain Island Lake, a 55+ community in Charlotte, North Carolina

The Best Small Active Adult Communities in Charlotte

Charlotte, North Carolina is a top retirement destination for adults 55+. With 72 active adult communities in the area, there’s a lot to choose from and think about. If you’re considering a move to Charlotte and already know you’re looking for a small community in size but big on options, then we’ve got you covered.

Cresswind Charlotte is a 55+ community near Charlotte, North Carolina

The Best Communities for Downsizing in Charlotte, North Carolina

A smaller home has less space to clean and maintain–inside and out. They also typically come with a smaller, more affordable price tag. Fortunately for the 55+ crowd looking to downsize in the Charlotte area, there are several active adult communities that offer smaller floor plans at affordable price points.

A sunny day at Lake Walk Freedom Homes in Mooresville, North Carolina

55+ Communities Near Lakes in the Charlotte Area

Dreaming of spending your retirement on the water, boating, fishing, swimming, or just relaxing, soaking up the sun every day? Then, Charlotte, North Carolina should be on your radar.

The clubhouse at Village at Deaton Creek in Hoschton, Georgia

The Best Active Adult Communities in the Atlanta Area

The state of Georgia is a popular destination for 55+ active adults, and the Atlanta area is one of its hottest places to relocate. The city offers fine restaurants, diverse shopping opportunities, and impressive cultural attractions, as well as its own rich history and distinctive southern charm. If you are considering living near Atlanta, you’ll want to take a look at six of the area’s most popular active adult communities.

A happy group of elderly people living in a 55+ community meet the age requirements.

What Are the Age Requirements for a 55+ Community?

For many, the answer to “What are the age requirements for a 55+ community?” may seem obvious. You have to be 55 or older, right? No, that’s not always the case. In fact, there are many scenarios where there’s only one resident who is 55 or older. Also, there are rare cases when no residents is 55 or older. 

About 55places

We’re changing the way people 55 and older are searching for their perfect next place. With a national network of hand-selected real estate experts, plus comprehensive information, unbiased content, and on-the-go insight about thousands of communities across the country, we’re a trusted resource paving the way from here to home. Whether you’re interested in a low-maintenance single-level residence, an active lifestyle or age-qualified community, an intimate enclave, or anything in between, we can help you make your next move the best one yet.

Scroll to Top