Mortgage Glossary
adjustable-rate mortgage (ARM)
A mortgage
that changes interest rate periodically based upon the changes in a
specified index.
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).
amortization
The repayment of a mortgage loan
by installments with regular payments to cover the principal and
interest.
amortization term
The amount of time required
to amortize the mortgage loan. The amortization term is expressed as
a number of months. For example, for a 30-year fixed-rate mortgage,
the amortization term is 360 months.
annual percentage rate (APR)
The cost of a
mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points).
application
A form, commonly referred to as a
1003 form, used to apply for a mortgage and to provide information
regarding a prospective mortgagor and the proposed security.
appraisal
A written analysis of the estimated
value of a property prepared by a qualified appraiser.
appraiser (return
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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 or other causes. The
opposite of depreciation.
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 mortgage that can be
taken over ("assumed") by the buyer when a home is sold.
assumption
The transfer of the seller's
existing mortgage to the buyer.
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.
balance sheet (return
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A financial statement that shows assets,
liabilities, and net worth as of a specific date.
balloon mortgage
A mortgage that has level
monthly payments that will amortize it over a stated term but that
provides for a lump sum payment to be due at the end of an earlier
specified term.
balloon payment
The final lump sum payment
that is made at the maturity date of a balloon mortgage.
bankrupt
A person, firm, or corporation that,
through a court proceeding, is relieved from the payment of all
debts after the surrender of all assets to a court-appointed
trustee.
bankruptcy
A proceeding in a federal court in
which a debtor who owes more than his or her assets can relieve the
debts by transferring his or her assets to a trustee.
before-tax income
Income before taxes are
deducted.
beneficiary
The person designated to receive
the income from a trust, estate, or a deed of trust.
binder
A preliminary agreement, secured by
the payment of an earnest money deposit, under which a buyer offers
to purchase real estate.
biweekly payment mortgage
A mortgage that
requires payments to reduce the debt every two weeks (instead of the
standard monthly payment schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the monthly payment that
would be required if the loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted from the borrower's bank
account. The result for the borrower is a substantial savings in
interest.
blanket mortgage
The mortgage that is secured
by a cooperative project, as opposed to the share loans on
individual units within the project.
bond
An interest-bearing certificate of debt
with a maturity date. An obligation of a government or business
corporation. A real estate bond is a written obligation usually
secured by a mortgage or a deed of trust.
breach
A violation of any legal
obligation.
bridge loan
A form of second trust that is
collateralized by the borrower's present home (which is usually for
sale) in a manner that allows the proceeds to be used for closing on
a new house before the present home is sold. Also known as "swing
loan."
broker
A person who, for a commission or a
fee, brings parties together and assists in negotiating contracts
between them.
buydown mortgage
A temporary
buydown is a mortgage on which an initial lump sum payment is made
by any party to reduce a borrower's monthly payments during the
first few years of a mortgage. A permanent buydown reduces the
interest rate over the entire life of a mortgage.
call option (return
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A provision in the mortgage that gives the
mortgagee the right to call the mortgage due and payable at the end
of a specified period for whatever reason.
cap
A provision of an adjustable-rate
mortgage (ARM) that limits how much the interest rate or mortgage
payments may increase or decrease.
capital improvement
Any structure or
component erected as a permanent improvement to real property that
adds to its value and useful life.
cash-out refinance
A refinance transaction in
which the amount of money received from the new loan exceeds the
total of the money needed to repay the existing first mortgage,
closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens. In other words, a refinance
transaction in which the borrower receives additional cash that can
be used for any purpose.
Certificate of Eligibility
A document issued
by the federal government certifying a veteran's eligibility for a
Department of Veterans Affairs (VA) mortgage.
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 mortgage.
certificate of title
A statement provided by
an abstract company, title company, or attorney stating that the
title to real estate is legally held by the current owner.
chain of title
The history of all of the
documents that transfer title to a parcel of real property, starting
with the earliest existing document and ending with the most
recent.
change frequency
The frequency (in months) of
payment and/or interest rate changes in an adjustable-rate mortgage
(ARM).
clear title
A title that is free of liens or
legal questions as to ownership of the property.
closing
A meeting at which a sale of a
property is finalized by the buyer signing the mortgage documents
and paying closing costs. Also called "settlement."
closing cost item (return
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A fee or amount that a home buyer must pay
at closing for a single service, tax, or product. Closing costs are
made up of individual closing cost items such as origination fees
and attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
closing costs
Expenses (over and above the
price of the property) incurred by buyers and sellers in
transferring ownership of a property. Closing costs normally include
an origination fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance and a survey.
Closing costs percentage will vary according to the area of the
country.
closing statement
Also referred to as the
HUD1. The final statement of costs incurred to close on a loan or to
purchase a home.
cloud on title
Any conditions revealed by a
title search that adversely affect the title to real estate. Usually
clouds on title cannot be removed except by a quitclaim deed,
release, or court action.
collateral
An asset (such as a car or a home)
that guarantees the repayment of a loan. The borrower risks losing
the asset if the loan is not repaid according to the terms of the
loan contract.
collection
The efforts used to bring a
delinquent mortgage current and to file the necessary notices to
proceed with foreclosure when necessary.
co-maker
A person who signs a promissory note
along with the 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. See endorser.
commission
The fee charged by a broker or
agent for negotiating a real estate or loan transaction. A
commission is generally a percentage of the price of the property or
loan.
commitment letter
A formal offer by a lender
stating the terms under which it agrees to lend money to a home
buyer. Also known as a "loan commitment."
common areas
Those portions of a building,
land, and amenities owned (or managed) by a planned unit development
(PUD) or condominium project's homeowners' association (or a
cooperative project's cooperative corporation) that are used by all
of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools,
tennis courts, and other recreational facilities, as well as common
corridors of buildings, parking areas, means of ingress and egress,
etc.
Community Home Improvement Mortgage Loan
An
alternative financing option that allows low- and moderate-income
home buyers to obtain 95 percent financing for the purchase and
improvement of a home in need of modest repairs. The repair work can
account for as much as 30 percent of the appraised value.
community property (return
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In some western and southwestern states, a
form of ownership under which property acquired during a marriage is
presumed to be owned jointly unless acquired as separate property of
either spouse.
comparables
An abbreviation for "comparable
properties"; used for comparative purposes in the appraisal process.
Comparables are properties like the property under consideration;
they have reasonably the same size, location , and amenities and
have recently been sold. Comparables help the appraiser determine
the approximate fair market value of the subject property.
condominium
A real estate project in which
each unit owner has title to a unit in a building, an undivided
interest in the common areas of the project, and sometimes the
exclusive use of certain limited common areas.
condominium conversion
Changing the ownership
of an existing building (usually a rental project) to the
condominium form of ownership.
construction loan
A short-term, interim loan
for financing the cost of construction. The lender makes payments to
the builder at periodic intervals as the work progresses.
consumer reporting agency (or bureau)
An
organization that prepares reports that are used by lenders to
determine a potential borrower's credit history. The agency obtains
data for these reports from a credit repository as well as from
other sources.
contingency
A condition that must be met
before a contract is legally binding. For example, home purchasers
often include a contingency that specifies that the contract is not
binding until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector.
contract
An oral or written agreement to do
or not to do a certain thing.
conventional mortgage
A mortgage that is not
insured or guaranteed by the federal government.
convertibility clause
A provision in some
adjustable-rate mortgages (ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified timeframes after loan
origination.
convertible ARM
An adjustable-rate mortgage
(ARM) that can be converted to a fixed-rate mortgage under specified
conditions.
cooperative (co-op)
A type of multiple
ownership in which the residents of a multiunit housing complex own
shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit.
corporate relocation
Arrangements under which
an employer moves an employee to another area as part of the
employer's normal course of business or under which it transfers a
substantial part or all of its operations and employees to another
area because it is relocating its headquarters or expanding its
office capacity.
cost of funds index (COFI)
An index that is
used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the weighted-average cost of
savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
covenant
A clause in a mortgage that
obligates or restricts the borrower and that, if violated, can
result in foreclosure.
credit
An agreement in which a borrower
receives something of value in exchange for a promise to repay the
lender at a later date.
credit history (return
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A record of an individual's open and fully
repaid debts. A credit history helps a lender to determine whether a
potential borrower has a history of repaying debts in a timely
manner.
credit report
A report of an individual's
credit history prepared by a credit bureau and used by a lender in
determining a loan applicant's creditworthiness. See merged credit
report.
credit repository
An
organization that gathers, records, updates, and stores financial
and public records information about the payment records of
individuals who are being considered for credit.
debt
An amount owed to another.
deed
The legal document conveying title to a
property.
deed-in-lieu
A deed given by a mortgagor to
the mortgagee to satisfy a debt and avoid foreclosure.
deed of trust
The document used in some
states instead of a mortgage; title is conveyed to a trustee.
default
Failure to make mortgage payments on
a timely basis or to comply with other requirements of a
mortgage.
delinquency
Failure to make mortgage payments
when mortgage payments are due.
deposit
A sum of money given to bind the sale
of real estate, or a sum of money given to ensure payment or an
advance of funds in the processing of a loan.
depreciation
A decline in the value of
property; the opposite of appreciation.
down payment
The part of the purchase price
of a property that the buyer pays in cash and does not finance with
a mortgage.
due-on-sale provision (return
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A provision in a mortgage that allows the
lender to demand repayment in full if the borrower sells the
property that serves as security for the mortgage.
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