To get common sense definitions to mortgage terminology, Click on the first letter of the word you wish to find.

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

A 

Adjustable Rate Mortgage (ARM)
A loan in which the interest rate is adjusted periodically based on changes in a pre-selected index. Based on the index fluctuations, the rate and payments on an ARM loan rise and fall with the market.

Alternative Financing
Mortgages at a lower than market rate, such as adjustable rate, graduated payment and buy down mortgages, and hybrid mortgages.

Amortization
Repayment of a loan with incremental payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.  In the early years of an amortized loan, almost all of the payment is applied toward interest, while in the last years of the loan, almost all of the payment is applied to reduce the principal.

Annual Percentage Rate (APR)
A calculation that expresses the total cost of a mortgage loan as a yearly rate. The Annual Percentage Rate (APR) includes both your interest and any additional costs or prepaid finance charges you might pay such as prepaid interest, private mortgage insurance, closing fees, points and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan.

Appraisal
A written estimate of a property's current market value, based on recent sales information for similar properties, the condition of the property and the neighborhood's impact on future property value. It is required to purchase or refinance your new home or property.

Appraisal Fee
A fee charged by a licensed, certified appraiser to provide an appraisal.

APR (Annual Percentage Rate)
A calculation that expresses the total cost of a mortgage loan as a yearly rate. The Annual Percentage Rate (APR) includes both your interest and any additional costs or prepaid finance charges you might pay such as prepaid interest, private mortgage insurance, closing fees, points and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan.

ARM (Adjustable Rate Mortgage)
A loan in which the interest rate is adjusted periodically based on changes in a pre-selected index. Based on the index fluctuations, the rate and payments on an ARM loan rise and fall with the market.

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B 

Balloon Mortgage
A short-term, fixed-rate loan with fixed monthly payments for a set number of years and a large final balloon payment of the remainder of the principal.

Borrower (Mortgagor)
An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full under the terms of the loan.

Broker
An individual who brings buyers and sellers together and assists in arranging funding or negotiating contracts for a client but does not loan money himself

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C 

Cash Out
A refinance for more than the remaining balance of the current mortgage. The excess money taken out reduces the borrower's equity they have already built up in the house.

Closing (or Settlement)
The closing is the conclusion of your real estate transaction and includes a meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

Closing Costs & Prepaids
costs paid in addition to the down payment on closing day.  These items include attorneys' fees, loan origination fees, appraisal fee, credit report, document preparation, escrow fee, survey and recording fees, tax escrow, hazard insurance, flood zone certification, two months of private mortgage insurance (if down payment is less than 20 percent) and sometimes the entire first year's private mortgage insurance premium.  Typically, the appraisal and credit report fees are paid at application.

Conforming Loan
A mortgage loan that meets all the requirements to be eligible for purchase by the two Federally sponsored housing agencies, Fannie Mae and Freddie Mac.

Conventional Loan
A mortgage not insured by the FHA or guaranteed by the VA.

Convertible ARMs
An ARM loan with the option of conversion to a fixed loan during a given time period

Credit Report
A report detailing the credit history of a prospective borrower that's used by lenders to help determine creditworthiness.

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D 

Deed
Legal document by which title to a property is transferred from one owner to another. The deed contains a description of the property and is signed, witnessed, and delivered to the buyer at closing.

Default
Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Delinquency
Failure to make required payments on time as agreed in the loan agreement.

Disclosure
A document describing all the parameters of a mortgage loan, such as the terms, conditions, interest rate caps, A.P.R, etc

Discount Points
Points are fees added on to a loan and are paid when the loan closes. One point equals one percent of the loan amount. There is an inverse relationship between the interest rate and the number of points paid. In other words, you can lower your monthly mortgage payments by paying more money up front through points.

Down Payment
In a home purchase, the up front cash amount you must pay that equals the difference between the purchase price and the mortgage amount.  Private mortgage insurance is required for a down payment less than 20 percent.

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E

Equity
The difference between the current market value of a property and the outstanding mortgage balance.

Earnest Money
Deposit money given to the seller by the potential buyer to show that he is serious about buying the house.  If the deal goes through, the earnest money is applied to the down payment.  If the deal does not go through, it may be forfeited.

Escrow Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance.

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F

Fannie Mae
This agency buys and sells residential loans that are underwritten to its specific guidelines.

Federal Housing Administration (FHA)
Government agency, division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

FHA (Federal Housing Administration)
Government agency, division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

FICO Score
A credit evaluation score developed by Fair, Isaac, and Co., used by lenders as one factor in making a loan decision.

Finance Charge
A finance charge is the total all interest a borrower would pay over the entire life of the loan.

Fixed Rate
An interest rate that is fixed for the term of the loan.

Fixed-Rate Mortgage
A mortgage whose interest rate and resulting monthly payments do not change for the life of the loan.

Foreclosure (or Repossession)
Legal process by which the lender forces the sale of a property when the borrower has not met the mortgage terms.

Freddie Mac (FHLMC)
An agency that purchases conventional mortgages that are underwritten to its specific guidelines.

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G 

Gross Income
Total income before taxes or expenses are deducted.

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H 

Homeowners insurance
Required by all lenders to protect their investment, and must be obtained before closing equal to the loan balance or the value of the home.

Housing and Urban Development (HUD)
A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD (Housing and Urban Development)
A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

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I 

Index
A barometer for measuring and adjusting the interest rate.  A commonly used index is the U.S. Treasury Bill.

Initial Rate
The rate charged during the first interval of an adjustable rate mortgage.

Interest
Charge paid for borrowing money.

Interest Rate
The annual rate of interest on the loan, expressed as a percentage of the outstanding balance.

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J 

Jumbo Loan
A mortgage with a principal balance that exceeds the amount eligible for purchase by Fannie Mae and Freddie Mac. Jumbo loans generally carry a higher interest rate. Currently the limit is set at $417,000 for single unit properties.

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K 

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L 

Lender
The bank, mortgage company, or mortgage broker offering the loan.

LIBOR (London Interbank Offered Rate)
The interest rate charged among banks for short-term foreign market loans, and a common index for adjustable rate mortgages.

Lien
A legal claim against a property that must be paid when the property is sold.

Loan Application
Document required by lenders prior to loan approval containing detailed information about the borrower and property.

Loan Term
The period of time between the closing date and the date of your last payment is paid of your loan.

Loan to Value Ratio (LTV)
The percentage of loan amount to the actual appraised value of the property.

Lock or Lock In
A lender's guarantee of an interest rate and related points for a set period of time, usually between loan application and loan closing. Protects borrower against rate increases during that time.

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M 

Market Rate
An estimate of the average rate being charged by lenders for conventional, or FHA/AV loans.

Mortgage
Document creating a lien on a property as security for the payment of a debt.

Mortgage Broker
An individual or company that arranges financing for borrowers.

Mortgage Insurance
Insurance purchased by a buyer to cover the lender's risk of loss. Mortgage Insurance is generally required by lenders when the down payment is less than 20% of the purchase price.

Mortgagee
The lender in a mortgage loan transaction.

Mortgagor
The borrower in a mortgage loan transaction.

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N 

Negative Amortization
The principal balance of the loan actually grows due to payments that are not enough to cover all the interest due.  Often, negative amortization accrues during the years of a variable rate or graduated payment mortgage when the payments are less than market rate.

Note
Legal document stating the terms of a debt and a promise to repay it.

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O 

Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan. It is included in the closing costs.

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P 

Points or Discount Points
A point or discount point is one percent of the loan amount and is charged by the lender to issue a loan at below market rates.  Points can be negotiated between buyer and seller or buyer and lender.  Points charged as prepaid interest are tax deductible by the buyer based on one's tax bracket.

Pre-approval
The process of determining how much money a prospective homebuyer or refinance will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
On conventional financing, lenders require that the borrower purchase a PMI to protect the lender against default on loans with less than a 20 percent down payment.  PMI has nothing to do with homeowners insurance or credit life insurance.  PMI should cost the same at all lenders.

Property Tax
A government tax based on the market value of a property.

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Q 

Qualifying
A buyer usually must qualify for a loan.  Usually, the monthly payment cannot be more than 25 percent to 28 percent of the buyer's gross monthly income and all the buyer's monthly debt cannot total more than 33 percent to 36 percent of his monthly income.  Some leeway may be granted based upon prior credit history down payment, job history, etc.

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R 

Recording Fee
Money paid to a government agent for entering the sale of a property into the public records.

Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the same property.

Real Estate Settlement Procedures Act (RESPA)
Law requiring, among other things, lenders to give borrowers advance notice of closing costs.

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S 

Security
This refers to the address of the property being pledged as security for your loan.

Settlement (or Closing)
The closing is the conclusion of your real estate transaction and includes a meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

Settlement Costs (or Closing Costs)
Fees incurred in a real estate or mortgage transaction paid by borrower and/or seller at the closing of the transaction. Examples include title fees, recording fees, appraisal fee, credit report fee, attorney's fees, taxes, and surveying fees.

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T 

Tax Lien
Claim against a property for unpaid taxes.

Term
The number of years it will take to pay off a loan.

Third Party Fees
Fees paid to a third party for services requested by the lender on your behalf.

Title
Document which gives evidence of ownership of a property and the rights of ownership and possession of that property.

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U 

Underwriting
The process of verifying data and evaluating a loan for approval.

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V 

VA Loans
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veteran.

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W 

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X 

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Y 

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Z 

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