Glossary of Common Mortgage Terms
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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.
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acceptance
An offeree s consent to enter into a contract and be bound by the terms of the offer.
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additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
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adjustable-rate mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
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adjusted basis
The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
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adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
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adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
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administrator
A person appointed by a probate court to administer the estate of a person who died intestate.
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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.
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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. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.
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amortization
The gradual repayment of a mortgage loan by installments.
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amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.
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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.
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amortize
To repay a mortgage with regular payments that cover both principal and interest.
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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.
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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).
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annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.
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application
A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.
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appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with
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appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
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appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.
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appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of
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assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.
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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.
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assessment rolls
The public record of taxable property.
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assessor
A public official who establishes the value of a property for taxation purposes.
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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).
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assignment
The transfer of a mortgage from one person to another.
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assumable mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.
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assumption
The transfer of the seller s existing mortgage to the buyer. See assumable mortgage.
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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.
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assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
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attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.
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balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
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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.
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balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
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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.
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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.
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before-tax income
Income before taxes are deducted.
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beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
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bequeath
To transfer personal property through a will.
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betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
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bill of sale
A written document that transfers title to personal property.
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binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
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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.
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blanket insurance policy
A single policy that covers more than one piece of property (or more than one person).
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blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
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bona fide
In good faith, without fraud.
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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.
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breach
A violation of any legal obligation.
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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.
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broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker.
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budget
A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.
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budget category
A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. Rent is an example of an expense category. Salary is a typical income category.
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building code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.
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buydown account
An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.
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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.
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call option
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.
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cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.
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capital
(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.
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capital expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.
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capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
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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.
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certificate of deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
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certificate of deposit index
An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).
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Certificate of Eligibility
A document issued by the federal government certifying a veteran s eligibility for a Department of Veterans Affairs (VA) mortgage.
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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.
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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.
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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.
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change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
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chattel
Another name for personal property.
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clear title
A title that is free of liens or legal questions as to ownership of the property.
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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.
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closing cost item
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.
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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; lenders or realtorsŪ often provide estimates of closing costs to prospective homebuyers.
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closing statement
See HUD-1 statement.
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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.
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coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
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coinsurance clause
A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.
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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.
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collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
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