Here is a glossary of mortgage terms
Below is a mortgage glossary of terms. There may be words listed that no longer apply in todays market. Please call us if you have any questions.
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
ACTUAL CASH VALUE
An amount equal to the replacement value of damaged
property minus depreciation.
Also known as a variable rate loan, an ARM usually offers
a lower initial rate than a fixed rate loan. The interest
rate can change at a specified time, known as an adjustment
period, based on a published index that tracks changes in
the current finance market. Indexes used for ARMs include
the LIBOR index and the Treasury index. ARMs also have caps
or a maximum and minimum that the interest rate can change
at each adjustment period.
The time between interest rate adjustments for an ARM. There is
usually an initial adjustment period, beginning from the start
date of the loan and varying from 1 to 10 years. After the first
adjustment period, adjustment periods are usually 12 months,
which means that the interest rate can change every year.
Paying off a debt by making regular installment payments over a
set period of time, at the end of which the loan balance is zero.
Provided by mortgage lenders, the schedule shows how, over the
term of your mortgage, the principal portion of the mortgage
payment increases and the interest portion of the mortgage
payment decreases.
How much a loan costs annually. The APR includes the interest
rate, points, broker fees and certain other credit charges a
borrower is required to pay.
A professional analysis used to estimate the value of the
property. This includes examples of sales of similar
properties.
An increase in the market value of a home due to changing
market conditions and/or home improvements.
Everything of value an individual owns.
A home buyer's agreement to take on the primary
responsibility for paying an existing mortgage
from a home seller.
B
BALLOON MORTGAGE
A mortgage loan with initially low-interest payments,
but that requires one large payment due upon maturity
(for example, at the end of seven years).
A mortgage loan in which one party pays an initial lump
sum in order to reduce the borrower’s monthly payments.
C
CAPACITY
Your ability to make your mortgage payments on time.
This depends on your income and income stability
(job history and security), your assets and savings,
and the amount of your income each month that is left
over after you've paid for your housing costs, debts
and other obligations.
The completion of the real estate transaction between
buyer and seller. The buyer signs the mortgage documents
and the closing costs are paid. Also known as the
settlement date.
A person who coordinates closing-related activities,
such as recording the closing documents and disbursing
funds.
The costs to complete the real estate transaction.
These costs are in addition to the price of the home
and are paid at closing. They include points, taxes,
title insurance, financing costs, items that must be
prepaid or escrowed and other costs. Ask your lender
for a complete list of closing cost items.
Property which is used as security for a debt. In the case
of a mortgage, the collateral would be the house and
property.
A unit in a multi-unit building. The owner of a condominium
unit owns the unit itself and has the right, along with
other owners, to use the common areas, but does not own
the common elements such as the exterior walls, floors
and ceilings or the structural systems outside of the
unit; these are owned by the condominium association.
A document used by the credit industry to examine your use
of credit. It provides information on money that you've
borrowed from credit institutions and your payment history.
A computer-generated number that summarizes your credit
profile and predicts the likelihood that you'll repay
future debts.
Your ability to qualify for credit and repay debts.
D
DEED
A legal document under which ownership of a property
is conveyed.
A portion of the price of a home, usually between
3-20%, not borrowed and paid at closing.
E
EARNEST MONEY DEPOSIT
The deposit to show that you're committed to
buying the home. The deposit will not be
refunded to you after the seller accepts
your offer, unless one of the sales contract
contingencies is not fulfilled.
Ownership interest in a property after liabilities
are deducted. Also referred to as your assets.
A lender-held account where a homeowner pays money
toward taxes and insurance of a home.
The actual account where the escrow funds are held in trust.
F
FIXED RATE MORTGAGE
A mortgage loan in which the interest rate remains the same for
the life of the loan.
G
GIFT LETTER
A letter that a family member writes verifying that s/he has
given you a certain amount of money as a gift and that you don't
have to repay it. You can use this money towards a portion of
your down payment with some mortgages.
A written statement from the lender itemizing the approximate
costs and fees for the mortgage.
H
HAZARD INSURANCE
Insurance coverage that pays for the loss or damage to a
person’s home or property.
A professional inspection of a home to determine the condition
of the property. The inspection should include an evaluation
of the plumbing, heating and cooling systems, roof, wiring,
foundation, and pest infestation.
A policy that protects you and the lender from fire or flood,
which damages the structure of the house; a liability, such as
an injury to a visitor to your home; or damage to your personal
property, such as your furniture, clothes or appliances.
A final listing of the costs of the mortgage transaction.
It provides the sales price and down payment, as well as
the total settlement costs required from the buyer and
seller.
I
INDEX
The published index of interest rates used to calculate
the interest rate for an ARM. The index is usually an average
of the interest rates on a particular type of security such
as the LIBOR.
The cost you pay to borrow money. It is the payment you make
to a lender for the money it has loaned to you. Interest is
usually expressed as a percentage of the amount borrowed.
A mortgage where the borrower pays only the interest on the
loan for a specified amount of time.
A property not considered to be a primary residence that
is purchased by an investor in order to generate income,
gain profit from reselling or to gain tax benefits.
L
LIABILITIES
Your debts and other financial obligations.
A claim or charge on property for payment of a debt.
With a mortgage, the lender has the right to take
the title to your property if you don't make the
mortgage payments.
A written agreement guaranteeing a specific mortgage
interest rate for a certain amount of time.
M
MARGIN
A percentage added to the index for an ARM to establish
the interest rate on each adjustment date.
The current value of your home based on what a purchaser
would pay. An appraisal is used to determine market value.
A legal document that pledges property to a lender as
security for the repayment of the loan. The term is
also used to refer to the loan itself.
Insurance that protects lenders against losses caused
by a borrower's default on a mortgage loan. Mortgage
insurance (or MI) typically is required if the borrower's
down payment is less than 20 percent of the purchase price.
P
POINTS
1% of the amount of the mortgage loan. For example,
if a loan is made for $50,000, one point equals $500.
The amount of money borrowed to buy your house or the amount
of the loan that has not yet been repaid to the lender.
This does not include the interest you will pay to borrow
that money. The principal balance (sometimes called the
outstanding or unpaid principal balance) is the amount
owed on the loan minus the amount you've repaid.
R
RATE CAP
The limit on the amount an interest rate on an ARM can
increase or decrease during an adjustment period.
The cost to replace damaged personal property without a
deduction for depreciation.
S
SERVICER
A firm that performs functions in support of a mortgage
that include collecting mortgage payments, paying the borrower's
taxes and insurance and generally managing borrower escrow accounts.
The process in which a servicer works with a delinquent borrower
to sell the house by a real estate agent prior to the foreclosure
sale.
T
TITLE
The documented evidence that a person or organization has ownership
of real property.
Federal law that requires disclosure of a truth-in-lending
statement for consumer loans. The statement includes a summary
of the total cost of credit, such as the APR and other specifics
of the loan.
U
UNDERWRITING
The process a lender uses to determine loan approval. It involves
evaluating the property and the borrower's credit and ability to pay
the mortgage.