 Mortgage Glossary
ACCELERATION CLAUSE:
A provision in a mortgage that gives the lender the right to demand immediate payment of the outstanding loan balance under certain circumstances. Usually when the borrower defaults on the loan.
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ACRE:
43,560 square feet. A measurement of area.
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ADJUSTMENT DATE:
The date the interest rate changes on an adjustable rate mortgage.
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ADJUSTABLE-RATE MORTGAGE (ARM):
A type of mortgage where the interest rate varies based on a particular index, normally the prime lending rate
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AMORTIZATION:
The repayment of a loan through regular periodic payment.
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AMORTIZATION SCHEDULE:
The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and debt service (interest) fees.
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AMORTIZATION TERM:
The length of time over which an amortized loan is repaid. Mortgages are commonly amortized over 15 or 30 years.
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ANNUAL PERCENTAGE RATE (APR):
The rate of annual interest charged on a loan.
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ANNUITY:
A sum of money paid at regular intervals, often annually.
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APPLICATION:
A form used to apply for a mortgage loan that details a potential borrower's income, debt, savings and other information used to determine credit worthiness.
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APPRAISAL:
A ''defensible'' and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser.
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APPRAISAL REPORT:
The end result of the appraisal process usually consists of one major standardized form such as, the Uniform Residential Appraisal Report form 1004, as well as all supporting documentation and additional detail information. The purpose of the report is to convey the opinion of value of the subject property and support that opinion with corroborating information.
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APPRAISED VALUE:
An opinion of the fair market value of a property as developed by a licensed, certified appraiser following accepted appraisal principals.
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APPRAISER:
An educated, certified professional with extensive knowledge of real estate markets, values and practices. The appraiser is often the only independent voice in any real estate transaction with no vested interest in the ultimate value or sales price of the property.
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APPRECIATION:
The natural rise in property value due to market forces.
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ARMS LENGTH TRANSACTION:
Any transaction in which the two parties are unconnected and have no overt common interests. Such a transaction most often reflects the true market value of a property.
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ASSESSED VALUE:
The value of a property according to jurisdictional tax assessment.
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ASSESSMENT:
The function of assigning a value to a property for the purpose of levying taxes.
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ASSET:
Any item of value which a person owns.
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ASSUMABLE MORTGAGE:
A mortgage that can be taken over by the buyer when a home is sold.
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BALLOON MORTGAGE:
A mortgage loan in which the monthly payments are not large enough to repay the loan by the end of the term. So at the end of the term, the remaining balance comes due in a single large payment.
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BALLOON PAYMENT:
The final large payment at the end of a balloon mortgage term.
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BANKRUPTCY:
When a person or business is unable to pay their debts and seeks protection of the state against creditors. Bankruptcies remain on credit records for up to ten years and can prevent a person from being able to get a loan.
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BIWEEKLY MORTGAGE:
A mortgage where you make "half payments" every two weeks, rather than one payment per month. This results in making the equivalent of 13 monthly payments per year, rather than 12, significantly reducing the time it takes to pay off a thirty year mortgage.
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BUY DOWN:
Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.
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CAP:
Associated with Adjustable Rate Mortgages. A limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.
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CASH-OUT REFINANCE:
Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.
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CHAIN OF TITLE:
The complete history of ownership of a piece of property.
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CLEAR TITLE:
Ownership of property that is not encumbered by any counterclaim or lien.
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CLOSING:
A torturous process designed to induce cramping in a home buyer's hands by requiring signature on countless pieces of documentation that nobody has ever read. Or, the process whereby the sale of a property is consummated with the buyer completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the sale (CLOSING COSTS).
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CLOSING COSTS:
All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal
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CLOSING STATEMENT:
The document detailing the final financial arrangement between a buyer and seller and the costs paid by each.
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CO-BORROWER:
A second person sharing obligation on the loan and title on the property.
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COLLATERAL:
An asset which is placed at risk to secure the repayment of a loan.
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COLLECTION:
The process a lender takes to pursue a borrower who is delinquent on his payments in order to bring the mortgage current again. Includes documentation that may be used in foreclosure.
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COMMUNITY PROPERTY:
In many jurisdictions, any property which has been acquired by a married couple. The ownership of the property is considered equal unless stipulated otherwise by both parties.
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COM PARABLES:
An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property whose value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.
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COMPOUND INTEREST:
Interest paid on the principal amount, as well as any accumulated interest.
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CONCESSIONS:
Additional value granted by a buyer or seller to entice another party to complete a deal.
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CONSTRUCTION LOAN:
A loan made to a builder or home owner that finances the initial construction of a property, but is replaced by a traditional mortgage one the property is completed.
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CONTINGENCY:
Something that must occur before something else happens. Often used in real estate sales when a buyer must sell a current home before purchasing a new one. Or, when a buyer makes an offer that requires a complete home inspection before it becomes official.
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CONTRACT:
A legally binding agreement, oral or written, between two parties.
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CONVENTIONAL MORTGAGE:
A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.).
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CONVERTIBLE ARM:
A mortgage that begins as and adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe.
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CREDIT REPORT:
A detailed report of an individuals credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.
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DEBT EQUITY RATIO:
The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair-market value of the home, less any outstanding mortgage debt.
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DEED:
A document indicating the ownership of a property.
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DEED OF TRUST:
A document which transfers title in a property to a trustee, whose obligations and powers are stipulated. Often used in mortgage transactions.
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DEED OF RECONVEYANCE:
A document which transfers ownership of a property from a Trustee back to a borrower who has fulfilled the obligations of a mortgage.
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DEED OF RELEASE:
A document which dismisses a lien or other claim on a property.
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DEED OF SURRENDER:
A document used to surrender any claim a person has to a property.
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DEFAULT:
The condition in which a borrower has failed to meet the obligations of a loan or mortgage.
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DELINQUENCY:
The state in which a borrow has failed to meet payment obligations on time.
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DEPOSIT:
Cash given along with an offer to purchase property, Also called EARNEST MONEY.
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DEPRECIATION:
The natural decline in property value due to market forces or depletion of resources.
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DETACHED SINGLE-FAMILY HOME:
A single building improvement intended to serve as a home for one family.
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DISCOUNT POINTS:
Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.
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DISTRESSED PROPERTY:
A mortgaged property which has been foreclosed on.
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DUE-ON-SALE PROVISION:
A clause in a mortgage giving the lender the right to demand payment of the full balance when the borrower sells the property.
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DUPLEX:
A single-building improvement which is divided and provides two units which serve as homes to two families.
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DOWN PAYMENT:
An amount paid in cash for a property, with the intent to mortgage the remaining amount due.
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EARNEST MONEY DEPOSIT:
A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.
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EASEMENT:
The right of a non-owner of property to exert control over a portion or all of the property. For example, power companies often own an easement over residential properties for access to their power lines.
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ENCROACHMENT:
A building or other improvement on one property which invades another property or restricts its usage.
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ENCUMBRANCE:
A claim against a property. Examples are mortgages, liens and easements.
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EQUAL CREDIT OPPORTUNITY ACT (ECOA):
U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex etc
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EQUITY:
The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property.
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ESCROW:
An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property.
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ESCROW ACCOUNT:
An account setup by a mortgage servicing company to hold funds with which to pay expenses such as homeowners insurance and property taxes. An extra amount is paid with regular principal and interest payments that go into the escrow account each month.
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ESCROW DISBURSEMENTS:
The pay out of funds from an escrow account to pay property expenses such as taxes and insurance.
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ESTATE:
The total of all property and assets owned by an individual.
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FAIR CREDIT REPORTING ACT:
A federal law regulating the way credit agencies disclose consumer credit reports and the remedies available to consumers for disputing and correcting mistakes on their credit history.
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FEDERAL HOUSING ADMINISTRATION (FHA):
A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930's to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders.
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FHA MORTGAGE:
A mortgage that is insured by the Federal Housing Administration (FHA).
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FIRST MORTGAGE:
The primary loan or mortgage secured by a piece of property.
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FIXED-RATE MORTGAGE (FRM):
A mortgage which has a fixed rate of interest over the life of the loan.
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FLOOD INSURANCE:
Supplemental insurance which covers a home owner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA-designated flood zones.
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FORECLOSURE:
The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan.
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GOVERNMENT MORTGAGE:
Any mortgage insured by a government agency, such as the FHA or VA.
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HAZARD INSURANCE:
Insurance covering damage to a property caused by hazards such as fire, wind and accident.
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HOME EQUITY LINE OF CREDIT:
A type of mortgage loan that allows the borrower to draw cash against the equity in his home.
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HUD-1 STATEMENT:
A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated CLOSING COSTS connected with a particular property purchase.
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IMPROVED LAND:
Any parcel of land which has been changed from its natural state through the creation of roads, buildings or other structures.
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INCOME APPROACH:
The process of estimating the value of property by considering the present value of a stream of income generated by the property.
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INTEREST RATE:
A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.
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INVESTMENT PROPERTY:
Any piece of property that is expected to generate a financial return. This may come as the result of periodic rents or through appreciation of the property value over time
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JUMBO LOAN:
A mortgage loan for an amount greater than the limits set by Fannie Mae and Freddie Mac. Often called non-conforming loans.
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LEASE:
A contract between a property owner and a tenant specifying the payment amount, terms and conditions, as well as the length of time the contract will be in force.
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LEASEHOLD ESTATE:
A type of property ''ownership'' where the buyer actually has a long-term lease on the property.
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LEASE OPTION:
A lease agreement that gives the tenant an option to buy the property. Usually, a portion of the regular monthly rent payment will be applied towards the down payment.
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LEGAL DESCRIPTION:
The description of a piece of property, identifying its specific location in terms established by the municipality or other jurisdiction in which the property resides. Often related in specific distances from a known landmark or intersection.
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LENDER:
The person or entity who loans funds to a buyer. In return, the lender will receive periodic payments, including principal and interest amounts.
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LIABILITIES:
A person's outstanding debt obligations.
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LIEN:
Any claim against a piece of property resulting from a debt or other obligation.
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LIFE CAP:
A limit on how far the interest rate can move for an Adjustable Rate Mortgage.
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LINE OF CREDIT:
An extension of credit for a certain amount for a specific amount of time. To be used by the borrower at his discretion.
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LOAN OFFICER:
A person that "sells" loans, representing the lender to the borrower, and the borrower to the lender.
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LOAN ORIGINATION:
How a lender refers to the process of writing new loans.
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LOAN SERVICING:
The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.
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LOAN-TO-VALUE RATIO (LTV):
The comparison of the amount owed on a mortgaged property to its fair market value.
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LOCK-IN:
An agreement between a lender and a borrower, guaranteeing an interest rate for a loan if the loan is closed within a certain amount of time.
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LOCK-IN PERIOD:
The amount of time the lender has guaranteed an interest rate to a borrower.
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MARGIN:
The difference between the interest rate and the index on an adjustable rate mortgage.
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MATURITY:
The date on which the principal balance of a financial instrument becomes due and payable.
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MERGED CREDIT REPORT:
A credit report derived from data obtained from multiple credit agencies.
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MORTGAGE:
A financial arrangement wherein an individual borrows money to purchase real property and secures the loan with the property as collateral.
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MORTGAGE BANKER:
A financial institution that provides primary and secondary mortgages to home buyers.
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MORTGAGE BROKER:
A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each buyer
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MORTGAGEE:
The entity that lends money in a real estate transaction.
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MORTGAGE INSURANCE:
A policy that fulfills those obligations of a mortgage when the policy holder defaults or is no longer able to make payments.
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MORTGAGE INSURANCE PREMIUM (MIP):
A fee that is often included in mortgage payments that pays for mortgage insurance coverage.
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MORTGAGOR:
The entity that borrows money in a real estate transaction.
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MULTI-FAMILY PROPERTIES:
Any collection of buildings that are designed and built to support the habitation of more than four families.
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NEGATIVE AMORTIZATION:
When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest
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NEIGHBORHOOD LIFE-CYCLE:
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NO-COST LOAN:
Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.
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NO-POINT LOAN:
A loan with no "points". The interest rate on such a loan will be higher than a loan with points paid. Also sometimes refers to a refinance loan where closing costs are included in the loan.
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NOTE:
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
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NOTE RATE:
The interest rate stated on a mortgage note.
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ORIGINAL PRINCIPAL BALANCE:
The total amount of principal owed on a mortgage loan at the time of closing.
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ORIGINATION FEE:
Refers to the total number of points paid by a borrower at closing.
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OWNER FINANCING:
A transaction where the property owner provides all or part of the financing.
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OWNER OCCUPIED:
The state of property wherein the owner occupies at least some portion of the property.
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PARTIAL PAYMENT:
A payment of less than the regular monthly amount. Usually, a lender will not accept partial payments.
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PERIODIC PAYMENT CAP:
The limit on how much regular monthly payments on an Adjustable Rate Mortgage can change during one adjustment period.
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PERIODIC RATE CAP:
The limit on how much the interest rate on an Adjustable Rate Mortgage can change during any one adjustment period.
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PLANNED UNIT DEVELOPMENT (PUD):
A coordinated, real estate development where common areas are shared and maintained by an owner's association or other entity.
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POINT:
A percentage of a mortgage amount (one point = 1 percent).
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PRE-APPROVAL:
The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre-approval allows the borrower greater freedom in negotiations with sellers.
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PREPAYMENT:
Payment made that reduces the principal balance of a loan before the due date and before the loan has become fully amortized.
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PREPAYMENT PENALTY:
A fee that may be charged to a borrower who pays off a loan before it is due.
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PRE-QUALIFICATION:
Less formal that pre-approval, pre-qualification usually means a written statement from a loan officer indicating his or her opinion that the borrower will be able to become approved for a mortgage loan.
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PRIME RATE:
The interest rate that banks and other lending institutions charge other banks or preferred customers.
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PRINCIPAL:
The amount owed on a mortgage which does not include interest or other fees.
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PRINCIPAL BALANCE:
The outstanding balance of principal on a mortgage. Does not included interest due.
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PRINCIPAL, INTEREST, TAXES, AND INSURANCE (PITI):
The most common constituents of a monthly mortgage payment.
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PRIVATE MORTGAGE INSURANCE (PMI):
A form of mortgage insurance provided by private, non-government entities. Normally required when the LOAN TO VALUE RATIO: is less that 20%.
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PURCHASE AGREEMENT:
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
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QUALIFYING RATIOS:
Two ratios used in determining credit worthiness for a mortgage loan. One is the ratio of a borrower's monthly housing costs to monthly income. The other is a ratio of all monthly debt to monthly income.
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RATE LOCK:
A guarantee from a lender of a specific interest rate for a period of time.
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REFINANCE TRANSACTION:
A new loan to pay off an existing loan. Typically to gain a lower interest rate or convert equity into cash.
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REVOLVING DEBT:
A type of credit that allows the borrower/customer to make charges against a predetermined line of credit. The customer then pays monthly installments on the amount borrowed, plus interest.
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SALE PRICE:
The actual price a property sells for, exclusive of any special financing concessions.
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SALES COMPARISON APPROACH:
An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently.
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SECOND MORTGAGE:
A loan secured by the equity in a home, when a primary mortgage already exists.
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SERVICER:
A financial institution which collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts.
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SERVICING:
The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.
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SINGLE-FAMILY PROPERTY:
A property designed and built to support the habitation of one family.
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SUBJECT PROPERTY:
A term which indicates a property which is being appraised.
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SURVEY:
A specific map of a piece of property which includes the legal boundaries and any improvements or features of the land. Surveys also depict any rights-of-way, encroachments or easements.
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TITLE:
A specific document which serves as proof of ownership.
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TITLE COMPANY:
An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act at the facilitator ensures all parties are paid during the real estate transaction.
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TITLE INSURANCE:
A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise.
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TITLE SEARCH:
The process whereby the TITLE COMPANY researches a properties title history and ensures that no outstanding claims exist.
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TRANSFER OF OWNERSHIP:
Any means by which the ownership of a property changes hands.
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TRUTH IN LENDING:
A federal law requiring full disclosure by lenders to borrowers of all terms, conditions and costs of a mortgage.
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VA MORTGAGE:
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
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VETERANS AFFAIRS, DEPARTMENT OF (VA):
The successor to the Veteran's Administration, this government agency is responsible for ensuring the rights and welfare of our nation's veterans and their dependents. Among other duties, the VA insures home loans made to veterans.
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