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Our mortgage glossary is a resource for those
wishing to unravel the language and terms used in mortgages that can confuse
even the most hardened financial expert.
Our simple glossary provides you with detailed
descriptions of hundreds of mortgage terms and acronyms that you need to
know before you can make an informed decision as to which is the best
mortgage product for you.
So, if you don't know your LTV Ratio from your IVA
Agreement, or your Redemption Fee from your Indemnity Premium then read
on...
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Acceleration
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The
right of the mortgagee (lender) to demand the immediate repayment of
the mortgage loan balance upon the default of the mortgagor
(borrower), or by using the right vested in the Due-on-Sale Clause.
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Adjustable
Rate Mortgage (ARM)
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Is
a mortgage in which the interest rate is adjusted periodically based
on a pre-selected index. Also sometimes known as the renegotiable
rate mortgage, the variable rate mortgage or the Canadian rollover
mortgage.
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Agreement
for Sale
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A
document in which the purchaser agrees to buy certain estate (or
personal property) and the seller agrees to sell under stated terms
and conditions. Also called sales contract, binder or earnest
money contract.
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Amortization
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Gradual
debt reduction. Normally, the reduction is made according to a
pre-determined schedule for installment payments
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Annual
Percentage Rate (APR)
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A
term used in the Truth in Lending Act to represent the full cost of
a loan including interest and loan fees.
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Appraisal
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A
formal, written estimation of the current market value of a home.
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Appraiser
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The
appraiser decides the market value of a home based on its condition
and the selling prices of comparable homes recently sold in the
area. His or Her job is to compute a fair estimate of market value
to help the lender decide a reasonable loan amount.
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Appreciation
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An
increase in value, the opposite of depreciation.
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Assessed
Valuation
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The
value that a taxing authority places upon personal property for the
purposes of taxation.
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Assumption
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The
agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller.
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Balloon
(Payment) Mortgage
-
Usually
a short-term fixed-rate loan which involves a set interest rate for
a certain period of time (usually 5 or 7 years), and one large
payment for the remaining amount of the principal at the
conclusion of that time frame (may be able to convert or refinance).
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Borrower
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A
mortgagor who receives funds in the form of a loan with the
obligation of repaying the loan in full with interest, if
applicable.
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Broker
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One
who receives a commission or fee for bringing buyer and seller
together and assisting in the negotiation of contracts between them.
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Building
Code
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The
local regulations that control design, construction and materials
used in construction. Building codes are based on safety and health
standards.
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Cash-Out
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Cashing
out refers to the refinancing of a loan where the borrower will take
out money on their own home. If a home is appraised at $100,000 and
the borrower's outstanding mortgage loan is $60,000, it is possible
to enter into an 80% cash-out refinance transaction for a loan of
$80,000 (80% of $100,000). The new mortgage of $80,000 will pay off
the $60,000 loan and leave $20,000 cash-out to the borrowers.
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Certificate
of Occupancy
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Written
authorization given by a local municipality that allows a newly
completed or substantially completed structure to be inhabited.
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Chattel
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Personal
Property.
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Closing
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The
conclusion of a transaction. In real estate, closing includes the
delivery of a deed, financial adjustments, the signing of notes, and
the disbursement of funds necessary to the sale or loan transaction.
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Closing
Costs
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All
of the costs to the buyer and seller individually that are
associated with the purchase, sale or financing of real property.
They include, but are not limited to, prorating of agreed items such
as taxes and rents, the cost of title insurance policies, and the
cost of credit reports, recording fees and escrow fees.
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Closing
Statement
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A
financial disclosure giving an account of all funds received and
expected at the closing, including the escrow deposits for taxes,
hazard insurance, and mortgage insurance.
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Collateral
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Property
pledged as security for a debt, such as real estate as security for
a mortgage.
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Commitment
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An
agreement, often in writing, between a lender and a borrower to loan
money at a future date subject to compliance with stated conditions.
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Contingency
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A
condition that must be met before a contract is binding. For
example, the sale of a house might be contingent upon the seller
paying for certain repairs.
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Contract
of Sale
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A
contract between a purchaser and a seller of real property to convey
a title after certain conditions have been met and payments have
been made.
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Conventional
Mortgages
-
A
conventional loan is the most common type of mortgage. With low down
payments, conventional mortgages are usually insured by private
mortgage insurance companies (PMI). Private mortgage insurance adds
a relatively small cost to your financing (about 6/10 of one percent
of the loan amount per year, or $600 per year on a $100,000 loan),
but it allows you to buy a home with a lower down payment.
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Credit
Rating
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A
rating given to a person to establish willingness to pay obligations
based upon one's past history of timely payment.
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Credit
Report
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A
report to a prospective lender on the credit standing of a
prospective borrower, used to help determine credit worthiness.
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Debt
Consolidation
- Paying off all high interest debt
you owe and consolidating it into one loan with lower interest &
monthly payment. Debt consolidation means all of your credit cards,
medical bills, etc. are combined together, less worrying. It allows
you to restructure your credit and save money.
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Debt-to-Income
Ratio
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Long-term
debt expenses as a percentage of monthly income. Lenders use this
ratio to qualify borrowers for mortgage loans, typically setting a
maximum debt-to-income ratio of 36%.
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Deed
of Trust
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In
many states, this document is used in place of a mortgage to secure
the payment of a note.
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Department
of Veteran Affairs (VA)
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An
independent agency of the federal government created in 1930. The VA
home loan guaranty program is designed to encourage lenders to offer
long-term, low down payment mortgages to eligible veterans by
guaranteeing the lender against loss.
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Discount
Fee
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In
an ARM with an initial rate discount, the lender gives up a number
of percentage points in interest to give the borrower a lower rate
and lower payments for part of the mortgage term (usually for one
year or less). After the discount period, the ARM rate will probably
go up depending on the index rate.
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Down
Payment
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When
you borrow money for a home, any lender will ask you to contribute
some of your own money to the purchase of the house. A lender will
usually require a down payment of at least 20% of the sales price
unless the buyer purchases mortgage insurance.
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Due-on-Sale
Clause
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A
provision in a mortgage or deed of trust that allows the lender to
demand immediate payment of the balance of the mortgage if the
mortgage holder sells the home.
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Earnest
Money
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A
sum of money given to bind a sale of real estate; a deposit.
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Equity
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The
home owner's interest in a property; the difference between fair
market value and the current amount the owner owes on the
property.
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Escrow
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An
amount set up by the lender into which the borrower makes periodic
payments, usually monthly, for taxes, hazard insurance, assessments,
and mortgage insurance premiums.
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Fair
Market Value
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The
price at which property is transferred between a willing buyer and a
willing seller, each of whom has reasonable knowledge of all
pertinent facts and neither being under and compulsion to buy or
sell.
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Fannie
Mae
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See
FNMA.
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FHA
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FEDERAL
HOUSING ADMINISTRATION - A division of the Department of Housing and
Urban Development. It's main activity is the insuring of residential
mortgage loans made by private lenders.
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FHA
Loan
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A
loan insured by the Federal Housing Administration open to all
qualified home purchasers. While there are limits to the size of FHA
loans (loan amount varies by region), they are generous enough to
handle moderately-priced homes almost anywhere in the country.
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FHA
Mortgages
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The
Federal Housing Administration, a government agency created in 1934,
provides insurance on some types of mortgage loans. An FHA-insured
loan also allows you to buy a house with a low down payment, ranging
from 3% to 5% depending on the price of the home. The buyer pays a
one-time fee of 3.8% of the loan amount for the mortgage insurance
premium at closing time, and there is an additional annual fee for
low down payment loans.
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FHLMC
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FEDERAL
HOME LOAN MORTGAGE CORPORATION - A private corporation created by
Congress to support the secondary mortgage market. It sells
participation certificates secured by pools of conventional mortgage
loans, their principal and interest guaranteed by the federal
government through the FHLMC. Popularly known as the Freddie Mac.
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First
Mortgage
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A
real estate loan that creates a primary lien against real property.
Also known as First Trust.
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FNMA
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FEDERAL
NATIONAL MORTGAGE ASSOCIATION - A private corporation created by
Congress to support the secondary mortgage market. FNMA sells
mortgage-backed securities backed by pools of conventional loans.
Payment of principal and interest on these securities is backed by
the US Government. Popularly known as Fannie Mae.
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Freddie
Mac
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See
FHLMC.
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Fixed
Rate Mortgage
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A
mortgage on which the interest rate is set for the term of the loan.
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Foreclosure
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In
the event that the borrower fails to pay back the loan through
mortgage payments, the lender has the right to put the home up on
the market for sale to recover the money owed to the lender. This is
known as foreclosure.
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Good
Faith Estimate
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An
estimate of all the costs associated with a purchase, or refinance.
This may include points, closing costs, escrow.
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Government
National Mortgage Association (GNMA)
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Also
known as Ginnie Mae.
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Graduated
Payment Mortgage (GPM)
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A
type of flexible-payment mortgage where the payments increase for a
specified period of time and then level off. This type of mortgage
has negative amortization built into it.
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Gross
Monthly Income
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The
amount of consistent and stable income that an individual receives
each month, averaged over a period of time. This amount includes
overtime pay, bonuses, commissions and income from dividends or
interest, provided that the individual can show a consistent history
of receiving such income.
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Hazard
Insurance
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A
contract that pays for loss on a home from certain hazards, such as
fire.
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Homeowners
Association
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An
organization of homeowners residing within a particular development
whose major purposes is to maintain and provide community facilities
and
-
services for the common enjoyment of the residents.
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Impound
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That portion of a borrower's monthly payments held by the lender
or servicer to pay for taxes, hazard insurance, mortgage insurance,
lease
-
payments, and other items as they become due (also known as
reserves).
- Index
- The measure of interest rate changes
that the lender uses to decide how much the interest rate on an ARM
will change over time.
- Interest
- Money paid for the use of money --
that is, money paid for a loan.
- Investor
- A money source for a lender.
- Jumbo Loan
- A loan which is larger than the
limits set by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Because
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jumbo
loans cannot be funded by these two agencies, they usually carry a
higher interest rate. These loans involve amounts between $214,600
to
- $650,000.
- Lender
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Any person or institution that provide money to a borrower.
- Lien
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A claim on the property of another as security against the
payment of a just debt.
- Loan
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An amount of money a borrower will take out from a lender to pay
for a purchase.
- Loan Officer
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Professional with years of experience in giving borrowers
knowledgeable information of a variety of quality loan programs to
meet the unique loan
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needs. Your complete source for answers to all of your mortgage
related questions.
- Loan Processor
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An individual who works under the instruction of a loan officer
who reviews the loan and makes sure all of the information contained
in
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the file is accurate, complete, and meets the requirements for the
loan program that will suit your needs.
- Loan-to-Value Ratio
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The
relationship between the amount of a home loan and the total value
of the property. For example, if you receive a loan of $80,000 on a
home that costs $100,000, the loan-to value ratio is 80%.
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Lock-In
Rate
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A
commitment from a lender to make a loan at a pre-set interest rate
at some future date, usually for not more than 90 days.
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Margin
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The
number of percentage points the lender adds to the index rate to
calculate the ARM interest rate at each adjustment.
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Market
Value
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The
highest price that a willing buyer would pay and the lowest a
willing seller would accept.
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Mortgage
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An
interest in real property given as security for the payment of an
obligation.
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Mortgage
Insurance
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A
policy that allows mortgage lenders to recover part of their
financial losses if a borrower fails to fully re-pay a loan.
Mortgage insurance makes it possible to buy a home with as little as
5% down.
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Mortgage
Investor
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Any
person or institution that invests in mortgages. By buying mortgage
loans from lenders, the mortgage investor gives the lender funds
that can be used for more lending.
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Mortgage
Life Insurance
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A
type of term life insurance. The amount of coverage decreases as the
mortgage balance declines. In the event that the borrower dies while
the policy is in force, the debt is automatically paid by insurance
proceeds.
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Mortgagee
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A
lender to whom property is conveyed as security for a loan.
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Mortgagor
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One who borrows money, giving as security a mortgage or deed of
trust on real property.
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Negative
Amortization
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Occurs when the monthly payments on the mortgage do not cover
all of the interest cost. The interest cost that isn't covered is
added to the unpaid
- principal balance.
- Origination Fee
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The fee charged by a lender to prepare loan documents, process,
underwrite, make credit checks, inspect and sometimes appraise a
property
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(lenders profit is also included).
- PITI
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Principal, Interest, Taxes and Insurance are the components of a
mortgage payment.
- Point
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A
dollar amount paid to a lender for making a loan. A point is one
percent of the loan amount. Also called discount points.
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Power
of Attorney
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A
legal document authorizing one person to act on behalf of another.
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Prepaids
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Necessary
to create an escrow account or to adjust the seller's existing
escrow account. Can include taxes, hazard insurance, private
mortgage insurance and special assessments.
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Prepayment
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A
privilege in a mortgage permitting the borrower to make payments in
advance of their due date.
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Prepayment
penalty
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Money
charged for an early repayment of debt. Prepayment penalties are
allowed in some form (but not necessarily imposed) in 36 states and
the District of Columbia.
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Pre-qualification
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Qualifying a borrower for a loan amount before looking for a
home. Final approval subject to appraisal of property.
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Principal
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The original balance of money loaned, excluding interest. Also,
the remaining balance of a loan, excluding interest.
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Purchasing
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Obtaining a mortgage loan for the acquisition of a property,
usually a home.
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Rate
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A percentage of the monthly mortgage payment paid to the lender.
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Real
Estate Broker
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The seller of the house pays the real estate broker to attract
potential buyers and help negotiate the contract between the seller
and the buyer. The
-
broker identifies available properties for buyers and shows them
homes that meet their criteria.
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Realtor
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A member of the National Association of Realtors.
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Refinance
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Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property.
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RESPA
- Real Estate Settlement Procedures
Act. RESPA is a federal law that requires lenders to provide home
mortgage borrowers with information about known or estimated
settlement costs.
- Second Trust
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A mortgage made subsequent to another mortgage and subordinate
to the first one.
- Servicer
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After a mortgage loan closes, the loan servicer collects the
payments, manages escrow accounts, pays escrowed taxes and
insurance, and manages
-
delinquent payments. Lenders often "release" servicing to
another business, which means that a home buyer will not necessarily
send house
-
payments to the original lender.
- Settlement
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The
closing of a mortgage loan.
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Title
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The
evidence of the right to or ownership in the property. In the case
of real estate, the documentary evidence of ownership is the title
deed. Title may be acquired through purchase, inheritance, gift, or
through foreclosure of a mortgage.
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Title
Insurance
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A
policy, usually issued by a title insurance company, which insures a
home buyer against errors in the title search (Owners Title
Insurance). The cost of the policy is usually a function of the
value of the property, and is often borne by the purchaser and/or
seller. Policies are also available to protect the lender's
interests (Lenders Title Insurance).
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Underwriter
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He/she
who performs the analysis of the risk involved in making a loan to a
potential home buyer based on credit, employment, assets, and other
factors; and the matching of this risk to an appropriate rate and
term or loan amount.
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Unsecured
Note
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A
loan that is not backed by collateral (property).
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VA
Mortgages
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If
you are current in the United States military, or if you have ever
served in U.S. armed forces, you may be eligible to get a loan
insured by the Veterans Administration. If you qualify, this special
government benefit to veterans might be a good option.
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Variable
Rate Mortgage (VRM)
-
See
Adjustable Rate Mortgage (ARM).
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Verification
of Employment
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A
document signed by the borrower's employer verifying his/her
position and salary.
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Wraparound
Mortgage
-
Results
when an existing assumable loan is combined with a new loan,
resulting in an interest rate somewhere between the old rate and the
current market rate. The payments are made to a second lender or the
previous homeowner, who then forwards the payments to the first
lender after taking their share.
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Equal Housing Lender. © 2005 Mortgage Solutions
Directory.