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We know that buying a new home can be a little overwhelming, especially when it comes to mortgage terminology. To make it a little easier on you, we’ve created this, easy to use, mortgage glossary. You can simply look up any word by clicking one of the letters above to advance the page to terms beginning with that specific letter or scroll down to find the word you are searching for.
A
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate and payment that changes periodically over the life of the loan based on the change in the specific index. Adjustable rate mortgages may have features that allow for the interest rate and payments to be fixed for an initial period (3 years, 5 years, 7 years, 10 years) and thereafter adjusting periodically based on the specific index.
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Amortization
The gradual repayment of a mortgage in installments, calculated to pay off the obligation in a fixed period of time.
Amortization Schedule
A timetable for payment of a mortgage; showing the amount of each payment being applied to interest and principal, as well as the remaining balance.
Annual Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance and loan origination fee (points).
Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
Appreciation
An increase in a home’s market value due to changing market conditions and/or home improvements.
B
Balloon (Payment) Mortgage
Usually a short-term, fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Buydown Mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made, by any party, to reduce a borrower’s monthly payments during the first few years of a mortgage.
C
Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Cash-out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, and points, and is the amount required to satisfy any outstanding subordinate mortgage liens.
Closing Costs Expenses
(over and above the price of the property) Expenses incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, discount points, an attorney’s fee, taxes, title insurance, survey and any other costs assessed at settlement.
Contingency
A condition that must be met before a contract is legally binding.
Conventional Loan
A mortgage loan that is not insured or guaranteed by the federal government. The maximum mortgage amount for a conventional conforming loan is $417,000.
Credit Report
A report of an individual’s credit history, prepared by a credit bureau and used by a lender in determining a loan applicant’s credit-worthiness.
Credit Score
A computer-generated number that summarizes an individual’s credit profile and predicts the likelihood that a borrower will repay future obligations.
D
Deed
The legal documents conveying title to a property.
Deed of Trust
The document used in some states instead of a mortgage, which gives the lender a security interest in the property. The title is conveyed to a trustee by the borrower, who retains equitable title. When the loan is paid in full, the title is returned to the borrower.
Default
Failure to make a mortgage payment on a timely basis or to otherwise comply with the requirements of a mortgage.
Depreciation
A decline in the value of a house due to changing market conditions, decline of a neighborhood, or lack of upkeep.
Discount Points
Fees(Points) that can be paid to reduce the interest rate. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
E
Earnest Money
A deposit given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Equal Credit Opportunity Act (ECOA)
A federal law that prohibits lenders from discriminating on the basis of a buyer’s race, color, religion, national origin, sex, age, marital status or receipt of income from public assistance.
Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow
The holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
F
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports, and outlines the procedure for correcting inaccuracies on your credit report.
Federal Home Loan Mortgage Corporation (Freddie Mac)
Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal National Mortgage Association (Fannie Mae)
Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases conventional mortgages as well as those insured by FHA or guaranteed by VA from approved lenders.
FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). This is also known as a government mortgage.
Fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
Foreclosure
The legal process by which a mortgaged property may be sold when a mortgage is in default.
G
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.
Government National Mortgage Association (GNMA)
Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
H
Hazard Insurance
Coverage for physical damage to a property from fire, wind, vandalism or other hazards.
Home Inspection
A professional inspection to examine the condition of the property, including an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and any pest infestation.
Homeowner’s Insurance
An insurance policy that combines personal liability and hazard insurance coverage for your home and its contents.
HUD-1 Settlement Statement
A final listing of the costs of the mortgage transaction, including the sales price and down payment as well as the total settlement costs required from the buyer and seller.
I
Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used include the 1 Year Treasury Bill, 6 Month and 12 month London Interbank Offered Rate (LIBOR), and the 11th District Cost of Funds (COFI).
Interest Only Loan
A mortgage is considered “interest only” if the monthly payment does not include any repayment of principal the mortgage payment covers only the interest & the actual loan balance remains unchanged.
J
Jumbo Loan
A loan which is larger (more than $417,000) than the limits set by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
K
L
Lifetime Cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan to Value Ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Lock-in Rate
A written agreement guaranteeing a specific interest rate when your mortgage closes.
M
Margin
The number of percentage points added to the index value to calculate the ARM interest rate at each adjustment period.
Mortgage
A legal document that pledges property to the lender as security for payment of a debt.
Mortgage Banker
A company that originates mortgages exclusively for resale.
Mortgage Broker
An individual or firm that for a fee acts as an intermediary between borrowers and lenders.
Mortgage Insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
N
O
Origination Fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan.
P
PITI
Principal, interest, taxes and insurance–the components of a monthly mortgage payment.
Point
1% of the amount of the mortgage loan. For example, if a loan is made for $50,000, one point equals $500.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, hazard insurance, private mortgage insurance and special assessments.
Q
R
Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Real Estate Professional
A person licensed to negotiate and transact the sale of a property on behalf of the owner.
Real Estate Settlement Procedures Act
A consumer protection law requiring lenders to give borrowers advance notice of closing costs.
Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
S
Survey
A measurement of land, prepared by a registers land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.
T
Title
A document that gives evidence of an individual’s ownership of property.
Truth-in-Lending Act (TILA)
Federal law which 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.
V
VA Loan
A long-term, low or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.