Mortgage Terms
Adjustable Rate Mortgage: A mortgage loan in which the interest rate adjusts periodically based on the changes of a designated index, like the one-year Treasury Bill or the LIBOR.
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Amortization: Calculation of the amount of the installment payment it takes to pay off the obligation at the end of a fixed period of time.
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Annual Percentage Rate (APR): Total cost of a mortgage stated as a yearly rate. It tends to be higher than the note rate because it includes interest rate and closing costs.
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Appraisal: A professional report that estimates the market value of a property.
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Assessed Value: The value a tax authority places on real property for the purpose of assessing yearly property taxes.
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Balloon Mortgage: A mortgage that is amortized over a stated period but provides for a lump-sum payment due at an earlier period, e.g. 30-year due in 15, where the payments are based on 30-year repayment but the loan is due paid in full in 15 years.
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Cap: Limits how much the interest rate on an adjustable rate mortgage (ARM) can increase or decrease.
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Cash to Close: Liquid assets available to be used to pay the closing costs involved with a mortgage transaction.
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Collateral: Property pledged as security for a loan, such as property pledged as security for a mortgage.
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Conventional Mortgage: A mortgage not obtained under a government-insured program.
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Deed: A legal document that is recorded in the county conveying title to a property.
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Deed of Trust: The legal document that pledges the property for the security of a mortgage loan.
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Default: Failure to make mortgage payments in a timely manner or to comply with other requirements outlined in the note.
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Earnest Money Agreement (Sales Contract): The written agreement between the buyer and seller of a property, which stipulates the amount of the purchase, closing date and any repairs or other conditions that must be met before the transaction (purchase) is completed.
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Easement: A right of way given to persons other than the owner for access to or over their property.
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Equity: The portion of a property’s value over and above the amount owed against it.
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Escrow: A disinterested third party that handles legal documents and funds on behalf of the seller and buyer.
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First Mortgage: A real estate loan that has priority over any other subsequently recorded mortgages.
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Fixed Interest Rates: An interest rate which does not change during the term of the loan.
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Foreclosure: A legal procedure in which the mortgage loan is in default and the property taken from the borrower and sold by the lender to pay off the loan against the property.
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Gift Letter: A written letter signed by the individual giving funds for the purpose of buying a home which states there is no obligation to repay the sum of money being given.
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Gross Monthly Income: Total monthly income earned before taxes or other deductions.
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Hazard Insurance: Also referred to as homeowners or fire insurance; coverage for physical damage to a property from fire, wind, vandalism or other hazards.
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Home Equity Line of Credit (HELOC): Also referred to as a revolving line of credit; usually a second mortgage, which allows the borrower to obtain multiple advances up to a specific credit limit.
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Index: Generally a published number or percentage, such as the yield on the One-Year Treasury Bill, which is used to compute the interest rate for an adjustable rate mortgage.
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Jumbo Loan: A loan that exceeds the Fannie Mae legislated mortgage amount, which is currently $333,700. Jumbos are also called non-conforming loans.
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Legal Description: Describes the location of the property which has been recorded at the county.
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Lien: A legal claim or attachment against property as security for a loan.
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Loan-To-Value Ratio: The ratio between the amount of any mortgages against a property divided by the sales price or appraised value.
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Monthly Payment: Usually the amount of principal, interest, taxes and insurance paid each month on a mortgage loan.
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Mortgage: The conveyance of an interest in real property given as security for the repayment of a loan.
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Origination Fee: A fee paid to the lender for processing a loan application. The origination fee is stated in the form of points. One point equals one percent of the mortgage amount.
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PITI Reserves: A cash amount a borrower must have left over after making a down payment and paying the closing costs for the purchase of a home.
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Private Mortgage Insurance (PMI): Insurance written by a private company to protect the lender against loss resulting from nonpayment or default.
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Purchase Contract (Earnest Money Agreement/Offer): A written agreement between a buyer and seller of real property, setting forth the price and terms of the sale, also known as a sales contract.
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Qualifying Ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. The two calculations are housing expense divided by gross income, and the total debt including other monthly debt payments divided by gross income.
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Rate Lock: A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specific period of time.
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Title Insurance: Provides insurance that public records have been examined to insure that there are no liens or other claims against the property.
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Truth in Lending Act: A federal law that requires lenders to fully disclose the terms and conditions of a mortgage including the Annual Percentage Rate (APR) and other charges.
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Underwriting: The process of evaluating a loan application to determine credit worthiness and risk involved for the lender.
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VA Loan: A loan that is guaranteed or insured by the U.S. Department of Veterans Affairs, also known as a government loan.