Mortgage Glossary

Adjustable Rate Mortgage (ARM)
Mortgages in which the loan rate changes during the life of the loan, usually at one-, three-, or five-year intervals. Any changes are governed by the movement of an index, such as Treasury bills, Treasury securities index, or a national or regional average cost of funds index.

Advance
Additional funds loaned to a mortgagor by the lender.

Alternative Mortgage
Any home loan that does not conform to a standard fixed-rate mortgage. Such loans can include adjustable-rate, reverse annuity and graduated-payment mortgages.

Amortization
A payment plan by which the borrower reduces his or her debt gradually through monthly payments of principal.

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

Annual Percentage Rate (APR)
The actual percent of the loan that is paid in interest per year (i.e., the cost of credit on an annual basis). This includes any additional costs and fees (i.e., interest and all prepaid expenses that are required) associated with the loan. It is sometimes referred to as actual percentage rate or APR.

Application
An initial statement of personal and financial information required to apply for a loan.

Appraisal
A written evaluation of a specific property to determine its current market value based on recent sales of similar homes in a given market.

Appraised Value
An opinion or estimate of a property's fair market value as expressed in an appraisal. This information is based on an appraiser's knowledge, experience, and analysis of the property. Appraised values may also be based on computer models.

Appreciation
An increase in the value of property over time due to changing local or national market conditions.

Approval
Grant of a loan based on proof of good title, proof of actual income/employment, and the actual appraised value of the property being mortgaged.

Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assumable Mortgage
A mortgage that can be assumed, or taken over, by the buyer from the seller.

B
Balance
The outstanding amount due on a loan.

Balloon Loan/Mortgage
A mortgage with regular payments of principal and interest that do not fully pay off the loan before its due date. The balance of the mortgage is due in a lump sum at the end of the term of the note.

Balloon Payment
The lump sum payment of the balance due at the end of the term of the note.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debt by transferring his or her assets to a trustee.

Business Day
A day in which federal banks are required or authorized to be open to do business.

C
Capacity
The ability of the borrower/co-borrower to repay the loan.

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Charge-off
When the creditor sells your debt to a collection agency.

Closing Day
The date on which the title for the property passes from seller to buyer and/or the date on which the borrower signs the mortgage loan agreement.

Closing Costs
The costs associated with processing the loan, such as application fees, points, title search, insurance and credit report.

Collateral
The property (or other assets) that is being secured against the loan to ensure repayment of debt.

Commitment
A promise to lend, and a statement by the lender of the terms and conditions under which a loan is made.

Comparables
An abbreviation for "comparable properties," used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location and amenities and have recently been sold.

Condominium
A form of ownership in which the owner gets title to a housing unit and interest in the common areas; commonly referred to as a condo.

Cooperative (Co-op)
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Co-Signer/Co-Borrower
A person who signs on the loan but who does not have ownership of the property being mortgaged (i.e., a co-signer is not on the title and has no claim to ownership rights in the property). The co-signer is legally bound to the loan. He or she is the one that agrees to assume responsibility for a loan if the borrower becomes unable or unwilling to repay the loan.

Credit
A reflection of past payment history; a positive amount added to the transaction balance.

Credit Bureau
A company that creates the credit reports that are utilized in determining the borrower's creditworthiness.

Credit History
A 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 debt in a timely manner.

Credit Report/Rating
A written report detailing an individual's credit history. This helps the lender decide the creditworthiness of a prospective borrower.

D
Debt Ratio
The amount of debt or payments one must pay in relation to the income made; based on the current bills (i.e., bills that must be paid — mortgage, car payment, etc.) versus the monthly income. The formula to compute the percentage is the amount of debt (i.e., expenses) divided by the amount of income.

Deed
The actual document that proves ownership of a specific property (i.e., real estate). The deed lists the owner(s) of the property.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
A loan payment that is overdue but within the period allowed before actual default is declared; failure to pay an obligation when due.

Delinquent Mortgage
A mortgage involving a borrower who is behind on payments. If the borrower cannot bring the payments current within a specified number of days and terms, foreclosure could occur as a last resort.

Department of Housing and Urban Development
See HUD.

Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Disbursement
The payoff amount(s) for a loan, payable to specific lending companies to pay off the open debt.

Disposable Income
A term referring to all income remaining after all necessary expenses are paid, such as mortgage, car payment, insurance, etc.

E
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders to loan without discrimination based on race, color, religion, national origin, sex, marital status or income from public assistance programs.

Equitable Right of Redemption
A privilege granted by states to borrowers that allows a certain amount of time before the foreclosure sale for borrowers to pay the outstanding loan balance and recover the property.

Equity
The difference between the value of your home and the amount you owe on it.

F
Fair Credit Reporting Act
A federal law designed to protect consumers from inaccurate credit information, which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.

Fair Debt Collections Practices
A federal law designed to protect consumers from a variety of unfair, abusive and deceptive debt collection practices.

Fannie Mae or Federal National Mortgage Association (FNMA)
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Administration (FHA)
A federal agency established by Congress in 1934, in order to make mortgages more affordable for consumers and more desirable investments for lenders. FHA-approved lenders insure mortgage loans on homes that meet FHA standards.

Finance Charge
The total of all charges one must pay in order to get a loan.

First Mortgage
The primary mortgage on a property. When the property is sold, the lender who issued the first mortgage is paid first.

Fixed-Rate Mortgage
A home loan whose interest rate will remain fixed for the entire loan term. About 75% of all home mortgages today are fixed-rate mortgages.

Flood Insurance
A type of real property coverage to protect against losses arising from floods; required for real property located in "Designated Flood Hazard Areas" as designated by governmental agencies; used for the security of loans.

Forbearance
A term referring to the act of refraining from taking legal action despite the fact that a mortgage is in arrears (delinquent).

Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Free and Clear Property
A house that is paid for in full and has no mortgage(s) or liens against it.

Freddie Mac or Federal Home Loan Mortgage Corporation (FHLMC)
A corporation authorized by Congress to purchase residential mortgages as well as conventional home mortgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration. It sells participation certificates whose principal and interest are guaranteed by the Federal Home Loan Mortgage Corporation.

Funded
This refers to a loan in which checks have been issued.

G
Ginnie Mae
A government organization that administers mortgage-backed securities programs to channel new sources of funds into residential financing through the sale of privately issued securities.

Good Faith Estimate
A letter detailing the estimated closing/settlement costs.

Grace Period
Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the note.

Grantee
The party in a deed who is the buyer.

Grantor
The party in a deed who is the seller.

Gross Monthly Income
The total monthly income earned before deductions (taxes).

Group Mortgage Protection Insurance
Insurance paid by the borrower that includes mortgage life and/or mortgage disability coverage; pays the monthly mortgage payment or the unpaid balance of the mortgage in the event of a death or a disability of one of the borrowers.

H
Hazard Insurance
Insurance that protects against damage caused to property by fire, windstorm or other common hazards.

Home Equity Line of Credit (HELOC)
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his/her discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Equity Loan
A loan based on the equity on the borrower's home.

Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

HUD (Housing and Urban Development)
The U.S. Government agency that administers housing programs.

HUD-1 Statement
Also referred to as a "closing statement" or "settlement sheet." A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include commissions, loan fees, points and initial escrows.

I
Installment Payment
The regular periodic payment that a borrower contractually agrees to make to a lender.

Institutional Lender
A financial institution that invests in mortgages, stocks, bonds, etc. and carries them in its own portfolio. Savings banks, life insurance companies, commercial banks, pension funds, and savings and loan associations are some examples of institutional lenders.

Insured Loan
A loan insured by the FHA or a private mortgage insurance company.

Interest
The cost paid by a borrower for use of money borrowed to purchase a home.

L
Lien
A legal claim by an individual (or group of individuals) on the property of another individual, or individuals, as security for money owed.

Loan
A sum of money given to an individual or individuals with the intent that it is to be repaid at some future date along with any agreed upon interest.

Loan Application Fee
A fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report and a lock-in fee or other closing costs incurred during the process, or the fee may be in addition to these charges.

Loan Origination Fee
A fee charged by a lender to cover administrative costs of processing a loan.

Loan Servicing
A term referring to the steps taken to maintain a loan from the time it is closed until the last payment is received and the obligation is paid. Steps may include billing the borrower, collecting payments, escrowing tax and insurance payments, and making contract changes.

Loan-to-Value
The total amount of the loans (mortgages) divided by the market value (i.e., the appraised value).

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan(s) and the appraised value of the security property, expressed as a percentage.

Loss Payee
A term referring to the designated entity or individual that is to receive the proceeds from a settlement claim such as an insurance policy.

M
Market Value
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.

Maturity Date
The date a loan becomes due and payable.

Mortgage
A loan that is secured by a piece of real estate. The mortgagor (the buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes and to keep the property in good condition.

Mortgage Banker
A company that provides mortgage financing with its own funds and actually lends money to a customer.

Mortgage Broker
Someone who will serve as a third party and find someone else to lend money to a customer. A mortgage broker cannot approve a loan for a customer.

Mortgage Company
A company whose principal activity is the origination and/or servicing of mortgage loans that are sold to other investors or securitized.

Mortgage Commitment
A formal written communication by a lender, agreeing to make a mortgage loan on specific property, specifying the loan's amount, length of time and conditions.

Mortgage Consultant
An experienced representative who will assist you with evaluating and selecting the mortgage loan program that meets your needs.

Mortgage Origination Fee
A charge by the lender for the work involved in the preparation and servicing of a mortgage request.

Mortgagee
The lender who makes the mortgage loan.

Mortgage Loan Insurance
A form of insurance protection for a borrower that would pay part or all of the mortgage debt upon the death of the insured person.

Mortgagor
The borrower.

N
Non-Conventional or Non-Conforming Mortgage
A mortgage loan that does not conform to agency-established limits such as loan-to-value ratio, term and other characteristics. Usually the regulatory limits have to do with Fannie Mae, Freddie Mac and other government-established guidelines.

Note
A formal document showing the existence of a debt and stating terms of repayment.

Notice of Default
A written notice to a borrower that a default has occurred and that legal action may be taken.

O
Occupancy
A term referring to the use of the property. Generally, there are four types of occupancy: 1) owner (lives in the property), 2) non-owner (does not live in the property; rents the property), 3) investment, and 4) second/vacation (property is not rented, but is lived in at least one day per year by the owner).

Open Debt
Money that is owed.

P
Partial Payment
A payment made by the borrower that is less than the full amortized monthly payment amount due and is not intended to be accepted as the full payment.

Partial Release
A lender's relinquishment of its claim to some part of the real property that secures a mortgage loan.

Payment
The periodic amount due to repay a lender for the proceeds of a loan. It includes principal repayment, interest repayment, and often escrows for taxes and insurance premiums.

Payoff
The total amount of money needed to pay off a loan; includes all principal, interest and fees associated with a loan contract.

PITI
The abbreviation for principal, interest, taxes and insurance.

Points
A dollar amount, expressed as a percentage of the loan amount, that is paid to a lender. Points can reduce the interest rate on a loan and sometimes cover costs of the original loan.

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

Pre-Payment
An advance payment on a mortgage or a payment that is made before its contractual due date.

Pre-Payment Penalty
A fee paid for the advance of a partial or payment in full prior to the contractual due date of the mortgage.

Principal
The actual amount of money borrowed that is expected to be repaid over an agreed period of time. This is the amount of the loan, not including interest.

Promissory Note
A contract/agreement between the borrower and the lender for repayment of the loan (also called a "note").

Property Type
Classification of property (i.e., single-family, townhouse, condominium, etc).

Public Securitization
The issuing of securities (or bonds) to a large group of investors, usually a company. In a public securitization, the securities are registered with the Securities and Exchange Commission and are announced via a prospectus (i.e., marketed publicly).

Purchase Price
The original price the borrower paid for the mortgaged property.

R
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Refinance
Retirement of an existing debt from the proceeds of a new loan using the same collateral as security.

Rescission Period
A three-business-day waiting period from the time the final loan papers are signed to receipt of the actual loan money. According to federal law, the customer can cancel the loan without any penalty during this period.

Recurring Costs
These costs are ongoing, like mortgage insurance, property taxes and insurance.

Revolving Account
An account with no set term of when the money borrowed has to be paid back. The balance owed can change, as can the payment being made. Most credit card accounts are revolving.

Right of Foreclosure
The right of the lender to close out the mortgagor's interest and take over the property if the mortgagor violates the provisions of the mortgage.

Right of Rescission
The customer's right to cancel a loan transaction in which a security interest is or will be retained or acquired for a consumer's principal dwelling.

S
Second Mortgage
See Home Equity Loan.

Secondary Mortgage Market
This is the arena where the selling, trading and buying of existing loans among lenders and investors takes place.

Securitization
Securitization is the process of selling non-conventional loan packages to investors (public or private) who represent an interest in the cash flow generated by asset-backed loans. Loans are sold to a trustee (for cash), who in turn sells the loan (in bond form) to investors.

Self-employed
A term referring to an individual who collects more than 24% of his/her income from a business in which he/she has ownership.

Settlement
The closing of a mortgage loan.

Settlement Costs
See Closing Costs.

T
Title
Evidence (usually in the form of a certificate or deed) of a person's legal right to ownership of property.

Townhouse
An architectural type of construction; a row house on a small lot that has exterior limits common to other similar units; title to the unit and its lot is vested in the individual owner with a fractional interest in common areas, if any.

Truth in Lending Act
A federal law requiring a disclosure of credit terms using a standard format; intended to facilitate comparisons between the lending terms of financial institutions.

U
Underwriting
The 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.

V
Variable-Rate Mortgage
Same as an adjustable-rate mortgage in which interest rates fluctuate with the market and according to a schedule set out in the loan agreement.

Verification of Employment
A document signed by the borrower's employer verifying the borrower's position and salary.