Mortgage Glossary

Find the meanings of commonly used lending terminology

A-B-C-D-E-F-G-H-I-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z

A

adjustable-rate mortgage (ARM)A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

adjustment dateThe date on which the interest rate changes for an adjustable-rate mortgage (ARM).

adjustment periodThe period that elapses between the adjustment dates for an adjustable-rate mortgage

amortizationThe gradual repayment of a mortgage loan by installments.

amortization scheduleA timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

amortization termThe amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360

annual percentage rate (APR)The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

appraisalA written analysis of the estimated value of a property prepared by a qualified appraiser. Not the same as a home inspection.

appraised valueAn opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

assetAnything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

assumable mortgageA mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Top

B

balloon mortgageA mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

bankruptcyA proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Usually, at least 2 years must elapse from the discharge of the bankruptcy before lenders will consider making a loan to someone who had declared bankruptcy.

beneficiaryThe person designated to receive the income from a trust, estate, or a deed of trust.

bill of saleA written document that transfers title to personal property.

bondAn interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

bridge loanA form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

brokerA person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Top

C

capA provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.

cash-out refinanceA refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of EligibilityA document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

certificate of titleA statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

closing costsExpenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or Realtors® often provide estimates of closing costs to prospective home buyers.

commissionThe fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

comps or comparablesAn abbreviation for "comparable properties": Comps are used for comparative purposes in the appraisal process. Comparables are properties similar the subject property under consideration for a loan. The comparable properties will be reasonably the same size, location and amenities as the subject property and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

construction loanA short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

conventional mortgageA mortgage that is not insured or guaranteed by the federal government. Not the same as government mortgage.

convertibility clauseA provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

convertible ARMAn adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

credit historyA record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

credit reportA report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. See merged credit report.

credit reporting agency (or bureau)An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Top

D

deed of trustThe document used in some states instead of a mortgage. The title is conveyed to a trustee.

Department of Veterans Affairs (VA)An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

discount pointsSee point.

Top

E

earnest money depositA deposit made by the potential home buyer to show that he or she is serious about buying the house.

encumbranceAnything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

equityA homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

escrowAn item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow accountThe account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Top

F

Fair Credit Reporting ActA consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fannie MaeA congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

first mortgageA mortgage that is the primary lien against a property. A creditor holding the first mortgage lien is in first position to be paid when the property is sold.

fixed-rate mortgage (FRM)A mortgage in which the interest rate does not change during the entire term of the loan.

flood insuranceInsurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosureThe legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

fully amortized ARMAn adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Top

G

Graduated Payment Mortgage (GPM)A graduated payment mortgage loan, often referred to as GPM, is a mortgage with low initial monthly payments which gradually increase over a specified time frame. These plans are mostly geared towards young men and women who cannot afford large payments now, but can realistically expect to do better financially in the future.

Top

H

hazard insuranceInsurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

HUD-1 statementA document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

Top

I

indexA number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.

in-file credit reportAn objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

interestThe fee charged for borrowing money.

interest rateThe rate of interest in effect for the monthly payment due.

Top

J

judgmentA decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

jumbo loanA loan that exceeds Fannie Mae's legislated mortgage amount limits. Also called a non conforming loan.

Top

K

Top

L

liabilitiesA person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amount that are owed to others.

lienA legal claim against a property that must be paid off when the property is sold.

lifetime payment capFor an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

lifetime rate capFor an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

line of creditAn agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

liquid assetA cash asset or an asset that is easily converted into cash.

loanA sum of borrowed money (principal) that is generally repaid with interest.

loan originationThe process by which a mortgage lender brings into existence a mortgage secured by real property.

loan-to-value (LTV) percentageThe relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $85,000 mortgage has a LTV percentage of 85 percent.

lock-in or locking the loanA written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

lock-in periodThe time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

Top

M

marginFor an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

merged credit reportA credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

mortgage brokerAn individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

mortgage insuranceA contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Veterans Administration (VA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance.

mortgage life insuranceA type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Top

N

negative amortizationNegative amortization is also known as NegAm. It is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment.

no cash-out refinanceA refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

Top

O

origination feeA fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Top

P

periodic payment capFor an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period. See cap.

periodic rate capFor an adjustable-rate mortgage ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. See cap.

pointA one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

power of attorneyA legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

prepaymentAny amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

pre-qualificationThe process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

prime rateThe interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

principalThe amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

principal, interest, taxes, and insurance (PITI)The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

private mortgage insurance (PMI)Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

purchase and sale agreementA written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Top

Q

Top

R

rate lockA commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. See lock-in.

refinanceRefinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. The most common consumer refinancing is for a home mortgage.

Top

S

second mortgageA mortgage that has a lien position subordinate to the first mortgage.

Top

T

titleA legal document evidencing a person's right to or ownership of a property.

title companyA company that specializes in examining and insuring titles to real estate.

title insuranceInsurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

title searchA check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Treasury indexAn index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).

Truth-in-LendingA federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Top

U

underwritingThe process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Top

V

VA mortgageA mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Top

W

Top

X

Top

Y

Top

Z

Top