Glossary

Mortgage Terms Glossary

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on market conditions.
Amortization Schedule: A table showing the breakdown of each mortgage payment, including the portion that goes towards principal and interest over the life of the loan.
Amortization: The process of paying off a loan through regular payments over time.
Annual Percentage Rate (APR): The total cost of borrowing, including interest and fees, expressed as a yearly percentage rate.
Appraisal: An estimation of the value of a property, conducted by a licensed appraiser.
Assumption: When a buyer takes over the seller’s mortgage, assuming responsibility for repayment.

Balloon Mortgage: A mortgage that requires a large, lump-sum payment at the end of the loan term.
Biweekly Mortgage: A mortgage where payments are made every two weeks instead of monthly, resulting in 26 payments per year (equivalent to 13 monthly payments).
Borrower: The individual or entity who receives funds from a lender with the obligation to repay the loan.
Bridge Loan: A short-term loan used to bridge the gap between buying a new home and selling the current one.
Buydown: Paying extra points upfront to reduce the interest rate for the life of the mortgage.

Certificate of Title: A document that verifies the legal ownership of a property and any existing liens or encumbrances.
Closing Costs: Fees and expenses paid by the buyer and seller during the closing of a real estate transaction.
Closing Disclosure (CD): A document provided to the borrower before closing that outlines the final terms and costs of the mortgage loan.
Collateral: Property or assets pledged as security for a loan.
Conforming Loan: A loan that meets the criteria set by government-sponsored enterprises like Fannie Mae and Freddie Mac.
Credit Score: A numerical representation of a borrower’s creditworthiness, based on their credit history.

Debt Consolidation: Combining multiple debts into a single loan, often with a lower interest rate or better terms.
Debt-to-Income Ratio (DTI): A financial metric used by lenders to assess a borrower’s ability to manage monthly payments relative to their income.
Deed: A legal document that transfers ownership of a property.
Default: Failure to meet the terms of a loan agreement, typically by missing payments.
Down Payment: The initial payment made towards the purchase price of a home, typically expressed as a percentage of the total price.

Earnest Money: A deposit made by the buyer to show their commitment to purchasing the property.
Equity Accelerator Program: A program that helps homeowners build equity faster by making extra payments towards their mortgage principal.
Equity: The difference between the market value of a property and the outstanding balance on the mortgage.
Escrow Analysis: A periodic review of an escrow account to ensure that funds are sufficient to cover property-related expenses.
Escrow: Funds held by a third party (often a title company) on behalf of the buyer and seller until the completion of a real estate transaction.

Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant for the entire loan term.
Fixed-Rate Period: The initial period of a hybrid adjustable-rate mortgage (ARM) during which the interest rate remains fixed.
Forbearance: A temporary pause or reduction in mortgage payments granted by the lender to borrowers experiencing financial hardship.
Foreclosure: The legal process by which a lender repossesses a property due to the borrower’s failure to make mortgage payments.

Good Faith Estimate (GFE): An estimate of closing costs and loan terms provided to the borrower by the lender.
Grace Period: A period after the due date for a mortgage payment during which no late fees are assessed.

Home Equity Line of Credit (HELOC): A revolving line of credit secured by the equity in a home, allowing borrowers to withdraw funds as needed.
Home Equity Loan: A type of loan that allows homeowners to borrow against the equity in their property.
Home Inspection: A thorough examination of a property’s condition, typically performed before purchase.
Homeowners Insurance: Insurance that protects against damage to a home and its contents, as well as liability for injuries on the property.
Housing Counseling: Guidance provided by HUD-approved agencies to help borrowers make informed decisions about homeownership and mortgages.

Impound Account (Escrow Account): An account held by the lender to collect and manage property-related expenses such as property taxes and homeowners insurance.
Interest Rate Cap: A limit on how much the interest rate on an adjustable-rate mortgage (ARM) can increase or decrease during each adjustment period.
Interest-Only Mortgage: A mortgage where the borrower pays only the interest for a certain period, after which they begin paying principal as well.
Interest: The cost of borrowing money, expressed as a percentage of the loan amount.

Joint Tenancy: A form of property ownership where two or more individuals hold equal shares of the property, with the right of survivorship.
Jumbo Loan: A loan that exceeds the maximum loan amount set by government-sponsored enterprises like Fannie Mae and Freddie Mac.
Jumbo Mortgage: A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.

Key Rate: The benchmark interest rate used by lenders to determine the interest rates on adjustable-rate mortgages (ARMs).

Lien: A legal claim against a property as security for a debt or obligation.
Loan Estimate: A standardized form provided to borrowers by lenders that outlines the terms and costs of a mortgage loan.
Loan Modification: A permanent change to the terms of a mortgage loan to make payments more affordable for the borrower.
Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value of the property, expressed as a percentage.

Mortgage Broker: A licensed professional who connects borrowers with lenders and helps them find suitable mortgage products.
Mortgage Insurance: Insurance that protects the lender in case the borrower defaults on the loan.
Mortgage Note: A legal document that outlines the terms and conditions of a mortgage loan, including the repayment schedule and interest rate.
Mortgage: A loan used to finance the purchase of real estate, typically secured by the property itself.

Negative Amortization: When the principal balance of a loan increases over time due to payments that are insufficient to cover the interest.
Negative Equity: When the outstanding balance on a mortgage exceeds the current market value of the property.
Non-Conforming Loan: A loan that does not meet the criteria set by Fannie Mae and Freddie Mac for purchase in the secondary mortgage market.

Open House: A scheduled period during which a home for sale is open for viewing by potential buyers without the need for an appointment.
Origination Fee: A fee charged by lenders for processing a new loan application.
Origination Process: The process of applying for and obtaining a mortgage loan, including underwriting, approval, and closing.

PITI: An acronym representing the components of a monthly mortgage payment: Principal, Interest, Taxes, and Insurance.
Points: Fees paid to the lender at closing to reduce the interest rate on a mortgage loan.
Pre-Approval: A preliminary assessment by a lender indicating the amount a borrower may be eligible to borrow.
Principal: The amount of money borrowed, excluding interest and other charges.
Private Mortgage Insurance (PMI): Insurance that protects the lender if the borrower defaults on the loan and has a high LTV ratio.

Qualified Mortgage (QM): A mortgage loan that meets certain criteria established by the Consumer Financial Protection Bureau (CFPB) to ensure borrower ability to repay.
Qualifying Ratios: Ratios used by lenders to determine a borrower’s ability to repay a loan, typically including the housing expense ratio and the total debt-to-income ratio.
Quitclaim Deed: A legal document used to transfer ownership of property without guaranteeing the title’s validity.

Rate Lock: An agreement between the borrower and the lender that fixes the interest rate for a specified period, typically until closing.
Recast: A one-time adjustment to the monthly mortgage payment based on a lump-sum payment toward the principal balance.
Refinance: The process of replacing an existing mortgage with a new one, often to take advantage of lower interest rates or change the loan term.
Reverse Mortgage: A loan available to homeowners aged 62 or older, allowing them to convert part of their home equity into cash while retaining ownership.

Second Mortgage: A second loan taken out against a property that already has a mortgage.
Servicer: The company responsible for collecting mortgage payments and managing the loan account.
Servicing Transfer: The transfer of the administration of a mortgage loan from one servicer to another.
Short Sale: A real estate transaction in which the proceeds from selling a property fall short of the amount owed on the mortgage, requiring lender approval to sell the property at a loss.
Subprime Mortgage: A mortgage offered to borrowers with poor credit histories, often featuring higher interest rates and fees.

Term: The length of time over which the mortgage loan is repaid, typically expressed in years.
Title Insurance: Insurance that protects the buyer and lender against defects in the title of a property.
Title Search: An examination of public records to confirm the legal ownership of a property and identify any existing liens or claims.
Title: Legal ownership of a property.
Total Interest Percentage (TIP): The total amount of interest paid over the life of the loan expressed as a percentage of the loan amount.

Underwater Mortgage: When the outstanding balance on a mortgage exceeds the current market value of the property.
Underwriting: The process of evaluating a borrower’s creditworthiness and the risk associated with a loan application.

VA Loan: A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and certain military spouses.
Verification of Deposit (VOD): Documentation provided by a borrower’s bank confirming the amount and status of their deposits.
Verification of Employment (VOE): Documentation confirming a borrower’s employment status and income, typically required during the mortgage application process.
Vesting: The way in which ownership of property is held, typically as joint tenants, tenants in common, or as a sole owner.

Waiver: A voluntary relinquishment of a right or claim, often related to fees or penalties associated with the mortgage.
Walkthrough: A final inspection of a property before closing to ensure that any agreed-upon repairs have been completed.
Warehouse Lender: A financial institution that provides short-term financing to mortgage lenders to fund the origination of mortgage loans.

Xenophobia Clause: A clause in a mortgage contract that prohibits discrimination based on nationality or ethnicity.

Yield Spread Premium (YSP): A payment made by a lender to a mortgage broker for securing a loan with a higher interest rate than the borrower qualifies for.

Zero Down Mortgage: A mortgage that does not require a down payment, although borrowers may still need to pay closing costs and other fees.
Zoning: Regulations established by local governments that control the use of land and buildings within designated areas.