Home123 Glossary of Mortgage Terms

Abandonment -

The voluntary surrender of property, owned or leased, without naming a successor as owner or tenant.

Absentee Owner -

An owner who does not personally manage or reside at property owned.

Absolute Auction -

An auction in which the subject property is sold to the highest bidder regardless of the amount of the winning bid.

Absorption Rate -

An estimate of the expected annual sales or new occupancy of a particular type of land use.

Abstract Exam -

A fee related to the title insurance required by the lender.  A public record search exam is done to insure that both you and the lender are aware of any liens or encumbrances that could affect the property.  For our comparison purposes, an abstract exam fee is considered to be a third party fee and may be included in the title insurance fee by some lenders.

Acceleration Clause -

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Acceptance -

A party's consent to enter into a contract and be bound by the terms of the offer.

Accepted Contract -

A sales contract signed  by both seller and buyer that defines the terms of the sale.

Additional Principal Payment -

A payment by a borrower of more than the scheduled principal amount due, in order to reduce the remaining balance of the loan.

Adjustable Rate Mortgage -

An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan.  Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

Adjusted Basis -

The original cost of a property, plus the value of any capital expenditures for improvements to the property, minus any depreciation taken.

Adjustment Date -

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period -

The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM).

Administrative Fee -

A fee charged by a lender to cover the administrative costs of processing your loan request.  For our comparison purposes, this fee is typically a lender fee.

Administrator -

A person appointed by a probate court to administer the estate of a person who died intestate.

Affordability Analysis -

A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home and the closing costs that you might expect to pay.

Amenity -

A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Man-made amenities include swimming pools, tennis courts, community buildings and other recreational facilities.

Amortization -

A loan repayment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal and interest.

Amortization Schedule -

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principals and shows the remaining balance after each payment is made.

Amortization Term -

The amount of time required to amortize the mortgage loan. The amortization is expressed as a number of months. For example, for a 30 year fixed rate mortgage, the amortization term is 360 months.

Amortize -

To repay a mortgage with regular payments that cover both principal and interest.

Annual Fee -

An annual fee for a line of credit is sometimes required. If an annual fee is shown you will be billed for that amount, annually, until the loan is paid in full.

Annual Mortgagor Statement -

A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR) -

To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

Annuity -

A specified income paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Application -

The process of applying for a mortgage. The term "application" generally refers to a form that is used to collect financial information from a borrower by a lender.

Application Fee -

Funds required by a lender in advance of processing a loan request. Generally a deposit is collected to cover the costs of an appraisal and credit report and may or may not be refundable.

Appraisal -

An analysis performed by a qualified individual to determine the estimated value of a home.

Appraisal Fee -

In order to verify that the value of your home supports the loan amount you request, an appraisal will be ordered by the lender. The appraisal is generally performed by a professional who is familiar with home values in the area and may or may not require an interior inspection of the home. The fee for the appraisal is commonly passed on to the borrower by the lender. For our comparison purposes, the appraisal fee is a third party fee.

Appraised Value -

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.

Appraiser -

A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation -

An increase in the value of a property due to changes in market conditions and other causes. The opposite of depreciation.

APR -

To make it easier for consumers to compare mortgage loan interest rates the federal government developed a standard format, called an "Annual Percentage Rate" or APR, to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

ARM -

An ARM (adjustable rate mortgage) is a loan type that allows the lender to adjust the interest rate during the term of the loan.  Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

Assessed Value -

The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment -

The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

Assessment Rolls -

The public record of taxable property.

Assessor -

A public official who establishes the value of a property for taxation purposes.

Asset -

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds and so on).

Assignment -

The transfer of a mortgage from one person to another.

Assumable Mortgage -

A loan that does not have to be paid in full if the home is sold.  Instead, the new owner can take over payments on the existing loan and pay the seller the difference between the sales price and the balance on the loan.

Assumption -

The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.

Assumption Clause -

A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee -

The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Attorney Opinion -

Commonly referred to as a "title opinion".  This fee is related to the title insurance required by the lender.  It is a document issued by an attorney listing any liens or encumbrances that could affect the property that are a matter of public record.  For our comparison purposes, the attorney opinion fee is considered to be a third party fee and may be included in the title insurance or closing fee by some lenders.

Attorney Witness -

Related to the settlement/closing fee.  This fee is standard in some states and is the closing attorney's fee for witnessing the signing of the closing documents.  For our comparison purposes, an attorney witness fee is considered to be a third party fee and may be included in the title insurance or closing fee by some lenders.

Attorney-in-fact -

One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

Backfill -

The replacement of excavated dirt into a hole, crevice or against a structure such as a foundation.

Backup Contract -

A contract to buy property that becomes effective if a prior contract fails to be agreed upon.

Balance Due at End of Loan Term -

Some home equity loans may have a balance due at the end of the loan term. This means that if you make the minimum monthly payment during the life of the loan the entire balance will not be paid in full. A "balloon" payment will be due at that time.

Balance Sheet -

A financial statement in a table form that shows assets, liabilities and net worth.

Balloon Mortgage -

A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term.

Balloon Payment -

The final payment that is made at the maturity date of a balloon mortgage and pays the loan in full.

Bankrupt -

A person, company, or corporation that, through formal court proceeding, is relieved from the payment of all debt after the surrender of some or all assets to a court-appointed trustee.

Bankruptcy -

A court proceeding in which a debtor, who owes more than his assets, can relieve the debts by transferring his assets to a trustee.

Before Tax Income -

Income before deducting taxes.

Beige Book -

A survey of economic conditions, conducted in the Federal Reserve’s 12 regional banks, in preparation for Federal Open Market Committee meetings. Frequency: twice per quarter. Source: Federal Reserve.

Beneficiary -

The person designated to receive the benefits resulting from certain acts.

Bequeath -

To transfer personal property through a will or last testament. Compare with devise.

Betterment -

An improvement that increases property value as opposed to repairs or replacements that simply maintain value.

Bi-weekly Payment Mortgage -

A mortgage that requires payment to reduce the debt every two weeks instead of monthly. The 26 (sometimes 27) biweekly payments are each equal to one-half of the monthly payment that would be required with a standard 30 year fixed-rate mortgage. The result is a faster loan balance reduction with substantial savings in interest.

Bill of Sale -

A written instrument that transfers title to personal property.

Billing Error -

Any mistake in your monthly statement as defined by the Fair Credit Billing Act.

Binder -

An agreement between a buyer and seller to purchase real estate.  A binder, also known as an offer to purchase or a sales contract, secures the right to purchase real estate upon agreed terms for a limited period of time.  If the buyer changes his mind or is unable to purchase, the earnest money that was paid is forfeited unless the binder expressly provides that it is to be refunded.

Binder Deposit -

A sum of cash paid to a seller by a buyer prior to the closing to show that the buyer is serious about buying the house.  The binder deposit is deducted from the purchase price at closing and is not an additional cost.  Sometimes referred to as earnest money.

Blanket Insurance Policy -

A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage -

A single mortgage that is secured by more than one parcel of real estate.

Bona fide -

In good faith without fraud.

Bond -

An interest-bearing certificate that serves as evidence of a debt with a maturity date. Typically, bonds represent obligations of a government or business corporation. A real estate bond is a written obligation, usually secured by a mortgage or deed of trust.

Breach of Contract -

A violation of the terms of any legal obligation or agreement.

Bridge Loan -

Sometimes called a "swing loan", a bridge loan is generally a loan that is secured by a borrower's current residence to obtain the funds needed to purchase a new home if the current residence will not be sold prior to the purchase of a new home.

Broker -

A state-licensed agent who, for a commission or a fee, represents property owners in real estate transactions.

Budget -

A detailed plan of income and expenses estimated over a specified period of time. Budgets provide guidelines for managing costs and profits.

Budget Category -

A category of income or expense data that you can use in a budget.

Building Code -

Regulations established by local governments that control design, construction and materials used in construction. Building codes are usually based on standardized health and safety guidelines.

Building Line

A line set by law or deed restriction a certain distance from the street line, in front of which an owner cannot build on his lot. Also called a setback line.

Business Days -

Check with your lending institution to find out what days it considers as business days under the Truth in Lending and Electronic Fund Transfer Acts. Usually excludes weekends and holidays.

Buy-down Account -

An account in which money is held so that it can be applied to the monthly mortgage payments, as each payment comes due, during the period that an interest rate buy-down plan is in effect.

Buydown -

A process that allows a borrower to obtain a lower interest rate on a mortgage by paying points to a lender.  A temporary buydown will reduce the interest rate paid during the first few years of the loan.  A permanent buydown reduces the interest rate over the entire life of the loan.

California Bungalow -

A small, one-story, compact, early-twentieth-century house.

California Ranch -

A one-story, post-World War II style, ground-hugging house with a low, pitched roof.

Call Option -

A provision in a home loan that gives the mortgagee the right to call the mortgage due and payable at the end of a specified time period for any reason.

Cancellation Clause -

A contract provision that gives the right to terminate obligations upon the occurrence of specified events.

Cap -

Refers to a provision of an adjustable rate mortgage (ARM) that limits how much the interest rate or payment can increase or decrease.

Capital -

1) The net worth of a business defined by the amount by which its assets exceed its liabilities. 2) Money used to create income. 3) The money or other assets comprising the wealth at the disposal of a person or business enterprise. 4) The accumulated wealth of a business or individual.

Capital Expenditures -

The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital Gain

Income from the sale of an asset rather than from the general business activity. Capital gains are generally taxed at a lower rate then ordinary income.

 Capital Improvement -

Any component constructed as a permanent improvement to real property that increases its value and adds to its useful life.

 Cash Flow

Income generated by a rental property. It is determined by subtracting vacancy allowances and collection costs, operating expenses and debt-servicing costs from the property's scheduled gross income.

 Cash Out Refinance -

A refinance loan that provides the borrower with cash that exceeds the amount required to pay off existing mortgages on the home.  This additional cash can be used by the borrower for any purpose.

Certificate of Deposit (CD) -

An instrument, issued by a bank or other financial institution, that is evidence of a type of savings deposit. The document includes the institution’s promise to return the deposit, plus earnings at a specified interest rate within a specified period.

Certificate of Deposit index -

A rarely used index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARM) plans.

Certificate of Eligibility -

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) loan.

Certificate of Reasonable Value (CRV) -

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan.

Certificate of Title -

A statement of opinion rendered by a title company or attorney, stating that a title to real property is legally held by the current owner.

Chain of Title -

A history of all documents, including conveyances and encumbrances, that affect title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency -

Term sometimes used to describe the frequency of payment or interest rate changes in an adjustable-rate-mortgage (ARM).

Chattel -

Anything tangible and owned, other than real estate. The same as personal property.

City/County Tax Stamp -

A tax that is required in some municipalities if a property changes hands or a new mortgage is obtained.  The amount of this tax can vary with each state, city and county.  For our comparison purposes, this fee is considered a tax or other unavoidable fee.

Civilian Employment -

Economic indicator that reports the number of new civilian jobs created and the percentage of civilians in the job market who are unemployed. One of the most anticipated and closely watched economic indicators. Frequency: monthly. Source: Labor Department.

Clear Title -

A title that is free of clouds, liens, disputed interests or legal questions as to ownership of the property.

Closed-End Home Equity Loan

A loan which is to be repaid in full (along with any interest and finance charges) by a specified future date.

Close of Escrow -

A meeting of the parties involved in a real estate transaction to finalize the process.  In the case of a purchase, the close of escrow usually involves the seller, the buyer, the real estate broker and the lender.  In the case of a refinance, the close of escrow involves the borrower and the lender.  Sometimes referred to as the settlement or closing.

Closing -

A meeting of the parties involved in a real estate transaction to finalize the process.  In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender.  In the case of a refinance, the closing involves the borrower and the lender.  Sometimes referred to as the settlement or the close of escrow.

Closing Cost Item -

A single fee that a home buyer must pay at closing. Closing costs are made up of individual closing cost items such as origination fees, escrow fees, underwriting fees and processing fees. Most closing cost items are included as numbered items on the HUD-1 Settlement Statement.

Closing Costs -

The total of all the items that must be paid at closing related to your new mortgage.

Closing Statement -

Also referred to as the HUD-1 or the settlement statement, this is the document that provides line by line detail of the financial details related to a specific real estate transaction such as the fees paid by the seller and the buyer for a purchase transaction or the fees paid by the borrower for refinances.

Cloud on Title -

Any conditions such as encumbrances, liens or claims revealed by a title search that adversely affect the title to real estate. Clouds on a title often cannot be removed, except by a quitclaim deed release, or court action. Compare with clear title.

Co-maker -

A person who signs a promissory note along with the primary borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. Sometimes called a co-signer.

Coinsurance -

A sharing of hazard insurance risk between the insurer and the insured, or others. A coinsurance clause states to what extent a loss will be covered based on the percentage of value insured.

Collateral -

Property pledged as security for a debt. The borrower risks losing the collateral if the debt is not repaid according to the terms of the loan contract.

Collection -

The process of bringing a delinquent debt current and the filing of the necessary notices to proceed with repossession or foreclosure when necessary.

Commission -

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a small percentage of the price of the property or amount borrowed. Sometimes called points.

Commitment Letter -

A written offer from a lender to provide financing to a borrower.  The commitment letter states the terms under which the lender agrees to provide financing to the borrower.  Also called a loan commitment.

Common Area Assessments -

Charges against individual unit owners in a condominium complex, or planned unit development (PUD), for additional funds to repair, maintain, or improve the common areas of the project.

Common Areas -

Those areas of a property (usually a planned unit development or condominium project) that are used by all owners or tenants. Common areas may include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings and parking areas.

Common Law -

The body of law based on general custom in England and used to a certain extent in the United States. Common law sometimes prevails unless superseded by other law.

Community Home Buyer’s Program -

An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low or moderate income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Community Land Trust Mortgage Loan -

An alternative financing option that enables low to moderate income homebuyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

Community Property -

In some western and southwestern states, a form of ownership under which property accumulated through joint efforts of husband and wife is presumed to be owned equally by them unless acquired as separate property of either spouse.

Comparables -

An abbreviated form of comparable properties. Comparables are used for comparative purposes in the appraisal process and are properties that are very similar to the property being appraised. They have been sold recently and have approximately the same size, location and features. Comparables help the appraiser determine the approximate fair market value of the subject property. Often just called “comps”.

Compound Interest -

Interest paid on the original principal balance, and on the accumulated and unpaid interest.

Condemnation -

The taking of private property for public purpose by a government under the right of eminent domain. Also, the determination that a building is not fit for use or is dangerous and must be destroyed.

Condominium -

A form of real estate ownership in which each owner has title to a specific unit in a project and joint ownership in the common areas of the project.

Condominium Conversion -

Changing the ownership of an existing rental complex building to the condominium form of ownership.

Condominium Hotel -

A condominium complex that has registration desks, short-term occupancy, room service and daily cleaning services. Such properties are often operated as commercial hotels even though the units may be individually owned.

Conforming Loan -

A loan that does not exceed the maximum loan amount allowed for the most common mortgage investors. Loans that exceed this amount are referred to as "jumbo mortgages". The cost of obtaining a jumbo mortgage is generally higher than the cost of obtaining a conforming mortgage.

Construction Loan -

A short term loan that is used to finance the construction of a new home.  During the term of the loan the lender makes payments to the builder as the work progresses and the borrower makes interest payments on only the funds that have been disbursed to the builder.  Typically, the construction loan is refinanced into a permanent loan after the home is completed.

Construction Spending -

Economic indicator that measures the total amount of spending in the U.S. on all types of construction. The residential construction component is useful for predicting future national new home sales and mortgage origination volume. Frequency: monthly. Source: Commerce Department.

Consumer Confidence -

A monthly survey of 5,000 households designed to measure Americans’ optimism about their current situation and the future. Frequency: monthly. Source: Conference Board.

Consumer Price Index (CPI) -

Measures the change in the cost of living for most American families. Widely followed as an indicator of inflation of retail purchases. Frequency: monthly. Source: Federal Reserve.

Consumer Reporting Agency (CRA) -

A company that prepares detailed reports used by lenders to determine a potential borrower’s creditworthiness. These agencies obtain data for these reports from a credit repository as well as from other sources. More Commonly referred to as credit bureaus.

Consumer Sentiment -

An index designed to measure consumer optimism. Includes a preliminary report at mid-month and final report near month-end. Frequency: semimonthly. Source: University of Michigan.

Contingency -

A condition that must be met before a contract is legally binding.  For example, a lender's commitment to provide financing to a borrower may be contingent on receipt of an acceptable appraisal.

Contract -

An oral or written agreement to do or not to do a certain thing for consideration.

Conventional Mortgage -

A mortgage that is not insured or guaranteed by a government agency.

Convertibility Clause -

A provision in some adjustable-rate-mortgages (ARM’s) that allows the borrower to change the ARM to a fixed-rate-mortgage at a specified period within the term of the loan.

Convertible ARM -

An adjustable rate mortgage (ARM) that allows a borrower to convert their mortgage to a fixed rate loan for the remainder of the loan term if certain conditions are met.

Cooperative Project -

A residential or mixed-use building wherein a corporation holds title to the property, sells shares of stock, representing the value of a single apartment, to individuals who then receive a lease, or similar agreement, as evidence of title.

Cooperative (Co-op) -

A type of real estate ownership in which residents of a multi-unit property own shares of the corporation that owns the property.  Th