Mortgage Glossary

We have assembled these terms to help you to have a better understanding of mortgage financing. Please feel free to call on us for more information as well as a competitive array of real estate financing plans.

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Abstract (of title)	A written summary of the title history of a particular piece of real estate.

Acceleration Clause	A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.

Adjustable Rate Mortgage (ARM)	A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.

Amortization	Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.

Annual Percentage Rate (APR)	The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.

Application Fee	That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.

Appraisal	A report made by a qualified person as to the value of a property as of a given date.

Assessed Value	The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.

Assumption of Mortgage	The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.

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Balloon Loan	A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term unless refinanced .

Bridge Loan	A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.

Broker	The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown	Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.

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Cap (interest rate)	The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization. See Negative amortization.

Cap (payment rate)	The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Negative amortization.

Certificate Of Title	A statement that shows ownership of property, stating that the seller has clear legal title.

Closing	The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs.

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."

Closing Statement	A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.

Commission	An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.

Commitment	An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.

Comparables	Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.

Condominium	Ownership of a single unit in a multiunit building or complex of buildings. Along with this goes a share of ownership of the common areas.

Contingency	A condition that must be met for a contract or a commitment to remain binding.

Conventional Mortgage	Any mortgage loan that is not insured by FHA, guaranteed by VA, or funded by a government authorized bond sale or grant.

Convey	To transfer real estate from one person to another.

Credit Report	The report to a prospective lender on the credit standing of a prospective borrower.

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Deed	A legal written document by which title to property is transferred.

Default	Failure to fulfill the terms as agreed to in the mortgage of note.

Down Payment	The difference between the sale price of a property and the mortgage amount.

Due-On-Sale	A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.

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Earnest Money	The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.

Easement	A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.

Encumbrance	Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes.

Equity	The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.

Escrow Account	Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay property taxes, hazard insurance and mortgage insurance premiums.

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First Mortgage	A mortgage that has a primary lien against a property.

Fixed-Rates Mortgage	A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.

Fixture	Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold.

Flood Cert.	An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would require a federally mandated flood insurance policy.

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

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Graduated Payment Mortgage	A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.

Gross Income	Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.

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Hazard Insurance	Insurance protection against damage to a property from fire, windstorms, and other common hazards.

Homeowner's Insurance	An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.

HUD-1 Form	See Real Estate Settlement Statement.

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Income Property	Real estate that is owned for investment purposes and not used as the owner's residence.

Interest	A charge paid for the use of money.

Interim Financing	See Bridge Loan.

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Lien	A legal claim on a property used as security for a debt.

Loan-To-Value Ratio	The relationship between the amount of the mortgage and property value, usually shown as a percentage.

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Market Value	The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.

Mortgage	A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis.

Mortgage Note	A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.

Mortgagee	The lender in a mortgage contract.

Mortgagor	The borrower in a mortgage contract.

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Negative Amortization	A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.

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Offer to Buy	A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.

Origination Fee	A fee charged by the lender at closing for the preparation, evaluation and submission of a home loan

Owner Financing	A purchase transaction in which the seller provides all or part of the financing.

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PITI	An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.

Plat	A map of a piece of land showing boundary lines, streets, actual measurements and easements.

(Discount) Points	An optional fee paid by the borrower at closing in order to obtain a lower rate of interest. One point is equal to 1% of the loan amount

Prepayment Penalty	A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.

Pre-Approval	A commitment by a lender to extend credit provided that specific conditions are met.

Pre-Qualification	A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

Prime Rate	Rate charged by banks for short-term loans or lines of credit to their preferred corporate customers. It also tends to be a common index for home equity lines of credit.

Principal	The portion of a monthly mortgage payment that reduces the outstanding balance of the mortgage each month. The other portion typically represents the interest being paid.

PMI (Private Mortgage Insurance)	Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% downpayment or equity position.

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Qualifying Ratios	Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).

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Real Estate Settlement Statement	Final settlement statement issued by the title company at closing that is used to itemize buyer, seller, broker and lender charges/credits. Often referred to as the HUD-1

Realtor	A real estate broker or sales associate affiliated with the National Association of Realtors.

Recording Fee	The charges made by the register of deeds to record the legal documents.

Refinancing	Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

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Second Mortgage	A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first .

Secondary Mortgage Market	The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors

Survey	A map prepared by an engineer or surveyor charting a particular piece of real estate.

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Title	Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.

Title Insurance Policy	A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase

Title Search	A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.

Transfer Tax	In some areas city, county or state taxes imposed when property passes from one person to another.

Truth-In-Lending	Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan

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Underwriting	The process of evaluating a loan application to determine the risk involved for the lender.

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