🗂 Mortgage Glossary
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——— A ———
Abstract of Title
A historical summary provided by a title company that lists all public records affecting the title to a specific property.
Acceleration Clause
Allows the lender to demand full repayment of a loan if the borrower defaults or violates certain loan terms.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that adjusts periodically based on a financial index. ARMs often have caps to limit how much your rate or payment can increase.
Amenities
Features that enhance a home’s desirability or value, such as extra bedrooms, updated kitchens, or proximity to parks and transit.
Amortization
The process of paying off a mortgage over time through regular payments of principal and interest. An amortization schedule shows how each payment reduces the loan balance.
Annual Cap
A limit on how much an adjustable-rate mortgage can increase in a single year.
See also: cap.
Annual Percentage Rate (APR)
The total cost of borrowing expressed as a yearly rate. It includes interest plus certain fees and points. Required to be disclosed under the Truth-in-Lending Act.
Appraisal
A professional estimate of a home’s market value, often required by lenders before approving a mortgage.
Appreciation
An increase in a property's value over time due to inflation, improvements, or market demand.
Assessment
A charge levied against a property for local improvements, such as sidewalks or sewer lines.
Assignment
The transfer of a loan or ownership interest in a property to another party.
Assumption
An agreement in which a buyer takes over the seller’s existing mortgage. May require lender approval.
——— B ———
Balloon Mortgage
A mortgage with smaller monthly payments and a large final “balloon” payment due at the end of the loan term.
Biweekly Mortgage
A mortgage where payments are made every two weeks instead of monthly, resulting in one extra payment per year.
Bond
A financial security backed by a pool of mortgages. Bonds are often sold to investors in the secondary mortgage market.
Bridge Loan
Short-term financing used to purchase a new home before selling your current one.
Also called a swing loan.
Broker
A licensed intermediary who connects borrowers with lenders and helps arrange mortgage financing.
Buy-Down
A financing strategy where the buyer or seller pays upfront fees (points) to reduce the interest rate on a mortgage.
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Cap
A limit on how much an adjustable-rate mortgage's interest rate or monthly payment can increase. Caps may apply annually, per adjustment, or over the life of the loan.
Certificate of Reasonable Value (CRV)
A VA appraisal that determines the maximum loan amount a veteran can borrow for a specific property.
Certificate of Title
A legal document verifying ownership of a property and identifying any liens or legal claims.
Closed-End Mortgage
A mortgage in which the loan amount is fixed and cannot be increased after the loan is originated.
See also: open-end mortgage.
Closing Costs
Fees paid at settlement when a home purchase is finalized. These may include lender fees, title charges, taxes, insurance, and prepaid expenses.
Cloud (on Title)
An unresolved issue or claim on the property that could affect ownership or the ability to sell.
Collateral
Something of value pledged to a lender as security for a loan. In mortgages, the home being financed serves as collateral.
Commitment Fee
A fee paid to a lender to lock in an interest rate and loan terms for a specified period before closing.
Co-Mortgagor
A person who shares responsibility for repaying the loan and also holds an ownership interest in the property.
Condominium (Condo)
An individually owned unit in a multi-unit property. Ownership includes shared rights to common areas like parking, hallways, and amenities.
Conforming Loan
A mortgage that meets the underwriting guidelines set by Fannie Mae or Freddie Mac, including loan limits.
Construction Loan
A short-term loan used to finance the building or renovation of a home. Funds are disbursed as construction progresses.
Consumer Handbook on Adjustable Rate Mortgages (CHARM)
A federally required disclosure booklet explaining the features and risks of ARM loans.
Conventional Loan
A mortgage that is not insured or guaranteed by the federal government. These loans typically require higher credit scores and larger down payments compared to FHA or VA loans.
Convertible Mortgage
An ARM loan that can be converted to a fixed-rate loan at designated times during the term.
Co-Signer
A person who agrees to repay a mortgage if the primary borrower defaults but does not hold ownership interest in the property.
Covenants
Restrictions placed on a property, often by a homeowner's association or developer, outlining how the property may be used.
CRV
See: Certificate of Reasonable Value.
Curtailments
Voluntary extra payments made toward the principal balance of a loan to pay it off faster and reduce interest.
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Debt
An amount of money owed to another party, often with interest.
Debt-to-Income Ratio (DTI)
The ratio of a borrower's monthly debt payments to their monthly gross (or effective) income. Used by lenders to assess loan affordability.
Deed of Trust
A legal document securing a loan with real property, used in many states instead of a mortgage. Involves three parties: borrower, lender, and trustee.
Department of Housing and Urban Development (HUD)
A U.S. government agency overseeing housing policies and programs, including FHA and Ginnie Mae.
Discount Points
Optional upfront fees paid to lower the interest rate on a mortgage. One point equals 1% of the loan amount.
Down Payment
The amount paid upfront toward the purchase of a home. The down payment reduces the loan amount and builds initial equity.
Due-on-Sale Clause
A provision allowing the lender to demand full repayment if the property is sold or transferred.
Duplex
A residential building with two separate living units.
——— E ———
Earnest Money
A deposit made by a buyer to show serious intent to purchase a home. It’s typically applied to closing costs or the down payment.
Easement
A legal right to use another person’s land for a specific purpose, such as utility access.
Equal Credit Opportunity Act (ECOA)
Federal law that prohibits credit discrimination based on race, color, religion, sex, marital status, age, or public assistance status.
Equity
The difference between the market value of a property and the outstanding mortgage balance. Equity increases as the loan is paid down or the property value rises.
Escape Clause
A contract provision allowing a party to cancel the agreement under specified conditions, such as inability to secure financing.
Escrow
A financial arrangement where a neutral third party holds funds or documents on behalf of the buyer and seller until certain conditions are met.
——— F ———
Fair Market Value
The estimated price a property would sell for on the open market between a willing buyer and seller.
Fannie Mae (FNMA)
A government-sponsored enterprise that buys and guarantees mortgages issued by lenders, helping to ensure liquidity in the housing market.
Federal Home Loan Mortgage Corporation (Freddie Mac)
A government-sponsored entity similar to Fannie Mae that purchases and securitizes mortgage loans.
Federal Housing Administration (FHA)
A government agency that insures loans made by approved lenders to borrowers with lower income, limited credit, or smaller down payments.
Fee Simple
The highest form of property ownership, allowing full control over the land and the ability to sell or pass it on.
FHA
See: Federal Housing Administration.
Fifteen-Year Mortgage
A mortgage with a 15-year repayment term. These loans offer lower interest costs over the life of the loan but higher monthly payments compared to 30-year loans.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains the same for the entire loan term.
Flood Insurance
Required coverage if a home is located in a FEMA-designated flood zone. Covers damage from flooding events.
FNMA
See: Fannie Mae.
Freddie Mac
See: Federal Home Loan Mortgage Corporation.
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Gift
A monetary contribution from a relative or eligible organization that can be used toward the down payment or closing costs. It must not require repayment.
Ginnie Mae
Nickname for Government National Mortgage Association (GNMA), which guarantees securities backed by FHA, VA, and USDA loans.
Good Faith Estimate (GFE)
An estimate of closing costs provided to the borrower within three business days of a loan application. Replaced by the Loan Estimate under TRID regulations.
Graduated Payment Mortgage (GPM)
A fixed-rate loan with payments that start low and increase over time, typically used to help buyers qualify initially.
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Hazard Insurance
Coverage that protects a home against physical damage such as fire or windstorms. Required by lenders.
Home Equity Loan
A second mortgage that allows a homeowner to borrow against built-up equity, often used for major expenses or debt consolidation.
Home Inspection
An examination of a property’s condition, typically conducted before closing to uncover potential issues.
Homeowners Insurance
A comprehensive insurance policy covering liability, property damage, and loss from theft or disasters.
Housing and Urban Development (HUD)
The U.S. government department overseeing national housing programs, including FHA.
Housing Affordability Index
A measure indicating how affordable housing is for the average buyer in a particular market.
Housing Expenses-to-Income Ratio
A percentage showing how much of a borrower's gross income goes toward housing costs. Used in mortgage qualification.
HUD
See: Housing and Urban Development.
——— I ———
Income Approach to Value
A method of property valuation based on the income a property can generate, often used for investment properties.
Income-to-Debt Ratio
See: Debt-to-Income Ratio.
Index
A benchmark interest rate used to adjust rates on ARMs. Examples include the LIBOR or Treasury Index.
Insurance
Part of PITI. Includes homeowners insurance and, in some cases, mortgage insurance or flood insurance.
Interest
The cost of borrowing money, typically expressed as an annual percentage of the loan amount.
Interest Cap
See: Cap.
Interest Rate
The percentage rate charged on a loan, not including other loan costs or fees.
See also: APR.
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Joint Tenancy
Ownership shared equally between two or more people, including the right of survivorship.
Jumbo Loan
A non-conforming loan that exceeds the limits set by Fannie Mae and Freddie Mac.
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Key Lot
A property considered more valuable because of its location, such as being adjacent to open space or a corner.
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Lien
A legal claim against a property for unpaid debts. Must be satisfied before the property can be sold.
Life-of-Loan Cap
A limit on how much an interest rate can increase over the entire term of an ARM.
Liquidity
The ease with which an asset can be converted into cash.
Loan Discount
See: Points.
Loan Origination Fee
A charge by the lender to process and close a loan. Often expressed in points.
Loan-to-Value Ratio (LTV)
The percentage of the loan amount compared to the appraised value of the home.
Lock-In
A lender's guarantee of a specific rate for a set period of time before closing.
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Maintenance Costs
Ongoing expenses to keep a home in good condition, including repairs and routine upkeep.
Margin
The number added to an index to determine the interest rate for an ARM.
Market Value
The expected selling price of a home in a competitive market.
Modification
A change made to the original terms of a loan, often used to help struggling borrowers.
Mortgage
A legal agreement in which a home is used as collateral for a loan.
Mortgage Banker
A company that originates and services mortgage loans.
Mortgage Broker
A licensed third party who helps borrowers find a loan from various lenders.
Mortgage Insurance
Protects the lender if the borrower defaults. Required on FHA loans and conventional loans with less than 20% down.
Mortgage Interest
The amount charged by the lender for the use of their money, paid monthly.
Mortgage Term
The length of the loan, commonly 15 or 30 years.
Mortgagee
The lender.
Mortgagor
The borrower.
——— N ———
Negative Amortization
When loan payments are less than the interest due, causing the loan balance to increase.
Non-Assumption Clause
A statement in the loan contract that prohibits a buyer from assuming the loan without the lender's permission.
Non-Conforming Loan
A loan that does not meet Fannie Mae or Freddie Mac guidelines. Jumbo loans fall into this category.
Note
A signed document promising repayment of a loan under agreed-upon terms.
——— O ———
Open-End Mortgage
Allows the borrower to borrow additional funds under the same loan agreement.
See also: Closed-End Mortgage.
Origination Fee
A charge by the lender for processing the mortgage application. Often 1% of the loan amount.
——— P ———
Payment Cap
See: Cap.
P&I
Abbreviation for Principal and Interest.
PITI
Abbreviation for Principal, Interest, Taxes, and Insurance. Represents the components of a typical mortgage payment.
Points
Fees paid to lower the interest rate or cover loan origination costs. One point equals 1% of the loan amount.
Pre-Qualification
A preliminary estimate of what a borrower can afford based on self-reported financial info.
Prime Rate
The interest rate banks charge their most creditworthy customers. A common index for variable loans.
Principal
The amount borrowed or the balance remaining on a loan, not including interest.
Private Mortgage Insurance (PMI)
See: Mortgage Insurance.
Property Appraisal
See: Appraisal.
Property Tax
A tax levied by local government based on a home’s assessed value.
Prorate
To divide or allocate costs proportionally between buyer and seller at closing.
——— Q ———
Qualification
A borrower’s eligibility for a loan, determined by credit, income, assets, and debt.
——— R ———
Rate Cap
See: Cap.
RESPA
See: Real Estate Settlement Procedures Act.
Reverse Mortgage
A loan that allows homeowners 62 or older to access their home equity and defer repayment until the home is sold or vacated.
RHCDS
See: Rural Housing and Community Development Service.
Right of First Refusal
A clause allowing a specific party the first chance to buy a property before it is sold to someone else.
Right of Rescission
The legal right to cancel certain loan contracts within three business days.
Rollover
The process of converting a short-term construction loan into a permanent mortgage.
Rural Housing and Community Development Service
A federal agency offering loans to eligible rural homebuyers.
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Second Mortgage
A loan taken against a home’s equity in addition to the first mortgage.
Secondary Market
Where mortgages are sold to investors after they are originated, often to institutions like Fannie Mae and Freddie Mac.
Servicing
Managing a loan’s billing, collections, escrow, and communication with the borrower.
Settlement Costs
See: Closing Costs.
Survey
A professional measurement of property boundaries and features.
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Tax Deed
A legal document transferring property ownership due to unpaid taxes.
Tax Savings
The amount of income tax a homeowner avoids due to deductions for mortgage interest and property taxes.
Taxes
Part of PITI. Includes property taxes paid monthly into an escrow account.
Tenancy
The manner in which property is owned: joint, common, by the entirety, or at will.
Title
The legal right to own and use a property.
Title Insurance
Protects against future claims or issues with a property’s title.
Trust Deed
See: Deed of Trust.
Truth in Lending Act (TILA)
A federal law requiring lenders to disclose key terms of credit and the true cost of borrowing.
——— U ———
Underwriter
A financial professional who evaluates loan risk and makes the final decision to approve or deny the mortgage.
Uniform Settlement Statement
A standardized document showing closing costs. Replaced by the Closing Disclosure under TRID.
Utility Costs
Monthly housing expenses for water, electricity, gas, etc.
——— V ———
VA Loan
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs. Available to eligible veterans with no down payment required.
Vacation Home
A secondary residence not used as a primary home.
Variable Rate Mortgage (VRM)
See: Adjustable-Rate Mortgage.
Veterans Administration (VA)
Federal agency offering home loan benefits and services to eligible veterans.
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Walk-Through
A final inspection of a home by the buyer before closing.
Warranty Deed
A document that guarantees the title is clear and the seller has the right to transfer ownership.
——— X ———
No entries for "X" at this time.
——— Y ———
Yield
The return on an investment, such as mortgage-backed securities.
——— Z ———
Zoning
Regulations by local government determining how property can be used (residential, commercial, industrial, etc.).