Mortgage Glossary

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.
Amortization The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.
Amortization Schedule A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
Annual Percentage Rate (APR) The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and other credit costs that may be paid by the borrower.
Appraisal A professional opinion or estimate of the market value of a property.
Appreciation An increase in the value of a property due to changes in market conditions or other causes.
Assessed Value The valuation placed upon property by a public tax assessor that is used to compute property taxes.
Cash Reserve A requirement of some lenders that buyers have sufficient cash remaining after closing equivalent to two months’ mortgage payments.
Clear Title A title that is free of liens or legal questions as to ownership of property.
Closing A meeting at which the sale of a property is finalized by delivery of a deed from the seller to the buyer and by the buyer’s signing the mortgage documents and paying closing costs. Also called “settlement.”
Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”
Commitment Letter A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
Contingency A condition that must be met before a contract is legally binding.
Deed The legal document conveying title to a property.
Default The failure to make a mortgage payment on a timely basis or to comply with other requirements of a mortgage.
Delinquency A situation in which a payment on a loan is overdue but not yet in default.
Earnest Money A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Easement A right of way giving persons other than the owner access to or over a property.
Equal Credit Opportunity Act A federal law that prohibits lenders from discriminating on the basis of the borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity A homeowner’s financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.
Equity Loan A loan based on the borrower’s equity in his or her home.
Escrow The holding of documents and money by a neutral third party prior to closing; also, and account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
First Mortgage A mortgage that has first claim to the secured property in the event of default.
Fixed-Rate Mortgage A mortgage in which the interest rate does not change during the entire term of the loan.
Flood Insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure The legal process by which a mortgaged property may be sold when a mortgage is in default.
Homeowner’s Insurance An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.
Homeowner’s Warranty A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Interest The fee charged for borrowing money.
Joint Tenancy A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Late Charge The penalty a borrower must pay when a payment is made after the due date.
Lien A legal claim against a property that must be paid off when the property is sold.
Lifetime Cap A provision of an ARM that limits the total increase in interest rates over the life of the loan.
Loan-To-Value Percentage The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
Lock-In A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Mortgage A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Note A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the mortgage note is secured by a mortgage.
Mortgage Interest Rate The rate of interest in effect for the monthly payment due.
Mortgagee The lender in a mortgage agreement.
Mortgagor The borrower in a mortgage agreement.
Notice of Default A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Payment Cap A provision of some ARMs limiting the amount by which a borrower’s payments may increase regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage.
PITI Stands for principal, interest, taxes, and insurance-the components of a monthly mortgage payment.
Points A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.
Prepaids Fees collected at closing to cover items such as setting up escrow accounts for property taxes, homeowner’s insurance, and mortgage insurance premiums.
Prepayment Penalty A fee that may be charged to a borrower who pays off a loan before it is due.
Pre-Qualification The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
Principal The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance (PMI) Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires PMI for loans with loan-to-value percentages greater than 80 percent.
Purchase and Sale Agreement A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Qualifying Ratios Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
Refinancing The process of paying off one loan with the proceeds from a new loan using the same property as security.
Second Mortgage A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market The buying and selling of existing mortgages.
Settlement Statement The computation of costs payable at closing that determines the seller’s net proceeds and the buyer’s net payment (referred to as a HUD-1).
Survey A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments, and other physical features.
Tenancy In Common A type of joint ownership in a property without rights of survivorship.
Title A legal document evidencing 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 Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of property.
Title Search An examination of the public records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer Tax State or local tax payable when title passes from one owner to another.
Truth-In-Lending Act A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
Underwriting The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

         

This site is brought to you by Best Advantage Credit Union. For your convenience, this site includes links to third parties. Best Advantage Credit Union does not endorse or guarantee these third party sites. The products and services offered on third party sites are not products of Best Advantage Credit Union and may not be insured by the NCUA or FDIC. Best Advantage Credit Union does not maintain or control privacy or security on these sites, and as such, makes no guarantees as to the privacy of any information you may provide or disclose while on these sites.