A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty. Prepayment Clause A clause inserted in a mortgage, which gives the mortgagor the privilege of paying all or part of the mortgage debt in advance of the maturity date. The mortgage amount initially borrowed or the portion still owing on the mortgage.
Interest is calculated on the principal amount.
Term Mortgage A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan. A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.