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Glossary of Mortgage Terms

Whether you are buying a home or refinancing, applying for a mortgage is a big step. This glossary can help you understand every step of the process. Our glossary of mortgage loan terminology defines a variety of terms used by loan officers and real estate professionals. 


A Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
  Adjustment Date
The date the interest rate changes on an ARM (adjustable rate mortgage).
  Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.
To "kill off" (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.
  Annual Percentage Rate (APR)
A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more.
The determination of property value based on recent sales information of similar properties.
Valuable items, encumbered or not, owned by a person, corporation, or entity.
B Balloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single "balloon" payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.
  Balloon Payment
The final lump sum that is paid at the end of the balloon mortgage.
  Bi-Weekly Mortgage
A mortgage loan that requires a payment twice monthly and yields thirteen payments per year, instead of twelve. This significantly reduces the time a principal is paid off.
  Blanket Mortgage
A mortgage secured by the pledging of more than one property or collateral.
  Bridge Loan
An equity loan secured to solve short-term financing problem.
Allows loans to be made at less-than-market interest rates by paying front-end discounts. The interest rate is brought down for a temporary period, usually from one to three years. In order to acquire this discount, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. After the discount period, the payment is calculated as the note rate.

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C Caps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.
  Certificate of Eligibility
A veteran's evidence of entitlement for a VA-guaranteed loan.
  Certificate of Reasonable Value (CRV)
An appraisal that has been performed on a property that is being paid for a VA loan. After the property has been appraised, the Veterans Administration issues a CRV.
Final arrangements to transfer title of property as well as allocate charges and credits.
  Closing Costs
Fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into "non-recurring," and "pre-paid." Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Property, real or personal, pledged as a security to back up a promise. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust.
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
  Conforming Loan
A loan for up to and including $417,000 in the continental United States (Alaska and Hawaii limits are higher).
  Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
  Conventional Mortgage
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio.
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
  Credit Rating
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower's credit, and different lenders may assign different grades to the same borrower.
  Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.
D Debt-to-Income Ratio (DTI)
The ratio of aggregate monthly debt to aggregate monthly income.
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.
  Deed of Trust
Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.
The failure to make payments on a loan.
Late- or non-payments of principal, interest, taxes, or insurance.
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
  Discount Points
A term used in government subsidized loans, such as FHA and VA loans. Refers to any "points" (one percent of the loan amount) paid in addition to the one percent loan origination fee.
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E Equal Credit Opportunity Act (ECOA)
The act declaring the elimination of discrimination on the basis of age, sex, and race in finance.
The difference between the current market value of a property and the principal balance of all outstanding loans.
  Escalator Clause
A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index.
A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.
  Escrow Account
An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner's insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.
  Escrow Analysis
An analysis performed by a lender each year to escrow account holders to ensure that the correct amount of money is being collected to cover anticipated payments.
  Escrow Fee
These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing.
F Fair Credit Reporting Act
A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.
  Fannie Mae (FNMA)
The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation's largest supplier of home mortgage funds.
  Fannie Mae's Community Home Buyer's Program
A program that offers flexible underwriting guidelines to subsidize a low- to moderate-income family's purchase of a home. The program usually decreases the total amount of cash needed to purchase a home.
  Federal Housing Administration (FHA)
An agency under the U.S. Department of Housing and Urban Development (HUD), it insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.
Up-front costs associated with a loan.
  FHA Loan
A government-backed mortgage loan supported by the US FHA and the Department of Housing and Urban Development (HUD).
  Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.
  Firm Commitment
A lender's agreement to provide a loan to a specific borrower on a specific property.
  First Mortgage
A mortgage that has priority over other mortgages.
  Fixed-Rate Mortgage
A mortgage where the interest rate does not change for the life of the loan.
The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent.
A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.
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G Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing.
  Government Loan
A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran's Administration), or RHS (Rural Housing Authority).
  Government National Mortgage Association (Ginny Mae)
Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.
  Grace Period
A time allowed, usually 15 days, for making late payments without a penalty.
  Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.
H Home Equity Line of Credit (HELOC)
A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount.
  Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.
  Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.
Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.
I Interest
Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.
  Interest Only
A term loan arrangement calling for payments of interest only, not to include any amount for principal.
  Interest Rate
The percentage of an amount of money that's paid for its use over a specified time period.
  Intermediate-Term Mortgage
A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.
J Judicial Foreclosure
A court procedure used by lenders to secure clear title to a property under a defaulted real estate loan.
  Jumbo Loan
A loan for $417,001 or more in the continental United States (limits could be higher in certain areas). These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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L Lender
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.
  Liability Insurance
Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.
A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.
  Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25% (7.25+6.0).
The principal, or amount of total borrowed money, that is repaid with interest.
  Loan Amount
The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount.
  Loan Origination
What the process of obtaining new loans is called.
  Loan Servicing
A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
  Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.
  Lock (noun)
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken.
  Lock (verb)
The act of committing to a mortgage rate. This action, taken by a borrower sometime between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender.
M Maturity
The "Due Date" of a loan.
  Merged Credit Report
A credit report that reports data from two or more major credit repositories.
  Minimum Credit
This field on the table refers to the minimum credit rating a borrower must have in order to qualify for the listed loan.
Any change to the original terms of a mortgage.
A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.
The lender in a mortgage agreement.
  Mortgage Insurance
Insurance that covers the lender against losses incurred as a result of a default on a home loan. This is usually required on all loans that have a loan-to-value higher than eighty percent. Mortgages that have an 80% LTV that do not require mortgage insurance have higher interest rates. The lenders then pay the mortgage insurance themselves. In addition, FHA loans and some first-time home buyer programs require mortgage insurance regardless of the loan-to-value.
The borrower in a mortgage agreement.
  Multi-Dwelling Units
Properties that provide separate housing units for more than one family, although only a single mortgage is secured.
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N Net Effective Income
Gross income less federal income tax.
  No Cash-Out Refinance
A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage.
  No-Cost Loan
A no-cost loan can either be: 1) a loan that has no "lender costs" associated with it or, 2) a loan that also covers purchases or refinancing costs, which may be incurred in buying a home, obtaining and/or refinancing a loan, but are not directly charged by the lender. The interest rate on this type of loan is higher.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
  Note Rate
The stated interest rate on a mortgage note.
O Origination Fee
The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.
P Partial Entitlement
Under VA loans, the amount of guarantee still available to an eligible veteran who has used his previous entitlement.
  Partial Payment
A payment that is not sufficient enough to cover the month payment. During times of economic hardship, a borrower can make this request of the loan servicing collection department.
  Participation Financing
A loan in which more than one mortgagee or more than one mortgagor harbors an interest. It can also be a loan in which the mortgagee receives partial ownership of the property being financed.
  Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated payment mortgage (GPM). The payment change date occurs the month immediately after the interest rate adjustment date.
  Periodic Payment Cap
The limit on the amount that payments can increase or decrease during any one adjustment period for an adjustable-rate mortgage (ARM) where the interest rate and principal fluctuate independently of one another.
  Periodic Rate Cap
The limit on the amount that payments can increase or decrease during any one adjustment period in an ARM (adjustable rate mortgage), regardless of how high or low the index fluctuates.
Acronym for Principal, Interest, Taxes, and Insurance.
  PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The PITI (principal, interest, taxes, and insurance) must equal the amount that the borrower would have to pay for PITI for a determined number of months.
A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.
Expenses such as taxes, insurance, and assessments, which are paid in advance of their due date, and on a prorated basis at closing.
Any amount paid so as to reduce the principal before the due date.
  Pre-Payment Penalty
Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay either part of or their entire loan in advance of the regular schedule.
After a Loan Officer has made inquiries about a borrower's debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower's chances for qualifying for a home loan.
The amount of debt, not counting interest, left on a loan.
  Private Mortgage Insurance (PMI)
Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.
  Promissory Note
A written promise to repay a specified amount over a specified period of time.
  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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Q Qualifying Ratio
The ratio of the borrower's fixed monthly expenses to his gross monthly income.
R Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
  Real Estate Settlement Procedures Act (RESPA)
An act requiring the revelation of all costs involved in a real estate closing to all participants.
A real estate agent, broker, or associate that holds an active membership in a local real estate board that is affiliated with the National Association of Realtors.
  Regulation Z
A truth-in-lending provision that requires lenders to reveal the actual costs of borrowing.
The process of paying off one loan with the proceeds from a new loan, using the same property as security.
  Repayment Plan
An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.
  Residual Qualifying
Under a VA loan, using specified housing expenses to qualify for a loan payment.
Rules imposed on the use of real estate in an effort to preserve property values.
  Revolving Debt
A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due.
  Rollover Loan
A loan that /includes a call date earlier than its normal amortization period.
S Secondary Mortgage Market
A market where mortgage originators may sell them, freeing up funds for continued lending and distributes mortgage funds nationally from money-rich to money-poor areas.
  Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
  Secured Loan
A loan that is backed by collateral.
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
  Settlement Costs
see Closing Costs .
  Stop Date
Date on a term loan when the balloon payment is due.
  Subordinate Financing
Any mortgage or other lien that has a priority lower than that of the first mortgage, or senior loan. See Second Mortgage .
A drawing or map the shows the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
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T Tax Lien
A claim against real estate for the amount of its unpaid taxes.
  Third-Party Origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
A legal document showing a person's right to or ownership of a property.
  Title Company
A company that specializes in examining and insuring titles to real estate.
  Title Insurance
Title Insurance policies typically insure a home buyer against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title Insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.
  Title Search
A check of the title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding.
  Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.
  Transfer of Ownership
The means by which the ownership of a property changes hands.
  Transfer Tax
State or local tax payable when the title passes from one owner to another.
  Truth-in-Lending Law
Provision that requires lenders to reveal the actual costs of borrowing.
  Two-Step Mortgage
A loan where the interest rate is fixed for the first seven years and then is adjusted one time for the balance of the loan period.
V VA Loan
A government-backed mortgage loan supported by the US Veterans Administration.
  Variable Rate Mortgage
see Adjustable Rate Mortgage

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