Glossary

Here are some terms if you need help with the loan lingo.

2/1 Buy Down Mortgage:
A mortgage where the initial interest rate is reduced for the first two years before adjusting to a predetermined rate.
Acceleration Clause:
A clause that allows the lender to demand immediate repayment of the loan balance if certain conditions are not met.
Additional Principal Payment:
Extra payments made to reduce the loan balance.
Adjustable-Rate Mortgage (ARM):
A mortgage with an interest rate that can change periodically based on changes in a corresponding financial index.
Adjusted Basis:
The original cost of a property plus the value of any capital expenditures, minus any depreciation.
Adjusted Date:
The date on which the interest rate changes for an adjustable-rate mortgage.
Adjusted Period:
The time period between interest rate adjustments for an adjustable-rate mortgage.

Biweekly Payment Mortgage:
A mortgage with payments made every two weeks, resulting in 26 payments per year.
Bridget Loan:
A short-term loan used until a longer-term financing option is secured.
Broker:
An individual or firm that facilitates the buying and selling of real estate or mortgage loans.
Buydown:
A payment made to a lender to reduce the interest rate on a loan.
Cap:
A limit on the amount by which an adjustable-rate mortgage's interest rate or payments can increase.

Affordability Analysis:
An analysis of a borrower's ability to afford a mortgage.
Amortization:
The process of paying off a debt over time through regular payments.
Amortization Term:
The period over which loan payments are calculated, typically expressed in years.
Annual Percentage Rate (APR):
The total cost of a mortgage, including interest, points, and other fees, expressed as a yearly rate.
Appraisal:
An estimation of the value of a property, conducted by a licensed appraiser.
Appraisal Value:
The determined value of a property based on an appraisal.
Asset:
Anything of monetary value owned by an individual.

Assignment:
The transfer of a mortgage from one party to another.
Assumability:
A fee charged by a lender when a buyer assumes an existing mortgage.
Assumption Fee:
A fee charged by a lender when a buyer assumes an existing mortgage.
Balance Sheet:
A financial statement that shows a company's financial position at a specific point in time.
Balloon Mortgage:
A mortgage with regular payments that do not fully amortize the loan, resulting in a lump-sum payment at the end of the term.
Balloon Payment:
The final lump-sum payment in a balloon mortgage.
Before-Tax Income:
An individual's income before taxes are deducted.

Biweekly Payment Mortgage:
A mortgage with payments made every two weeks, resulting in 26 payments per year.
Bridget Loan:
A short-term loan used until a longer-term financing option is secured.
Broker:
An individual or firm that facilitates the buying and selling of real estate or mortgage loans.
Buydown:
A payment made to a lender to reduce the interest rate on a loan.
Cap:
A limit on the amount by which an adjustable-rate mortgage's interest rate or payments can increase.
Certificate of Eligibility:
A document issued by the Department of Veterans Affairs (VA) confirming a borrower's eligibility for a VA loan.
Certificate of Reasonable Value (CRV):
A document issued by the VA establishing the maximum value and loan amount for a VA loan.
Change Frequency:
The frequency with which the interest rate or loan payments change in an adjustable-rate mortgage.
Closing:
The final step in the home-buying process where the buyer and seller sign all necessary documents, and funds are transferred.
Closing Costs:
The various fees and charges associated with the closing of a mortgage loan.
Compound Interest:
Interest calculated on the initial principal and the accumulated interest from previous periods.
Consumer Reporting Agency (or Bureau):
An organization that collects and compiles credit information on individuals.

Conversion Cause:
A clause allowing the borrower to convert an adjustable-rate mortgage to a fixed-rate mortgage under certain conditions.
Credit Report:
A detailed report of an individual's credit history.
Credit Risk Score:
A numerical representation of an individual's creditworthiness.
Deed of Trust:
A legal document conveying title to a property to a trustee as security for a loan.
Default:
Failure to fulfill the terms of a loan, usually by failing to make payments.
Delinquency:
A failure to make loan payments on time.
Deposit:
Money paid by a buyer to secure a property.
Discount:
The amount by which a mortgage's principal amount is reduced for upfront payment.
Down Payment:
The initial payment made when purchasing a property, typically a percentage of the purchase price.
Effective Gross Income:
An individual's income before taxes and other deductions.
Equity:
The value of an owner's interest in a property.
Escrow:
The holding of funds or documents by a neutral third party until specific conditions are met.

Escrow Disbursements:
Payments made by the escrow holder on behalf of the buyer or seller.
Escrow Payment:
A portion of a borrower's monthly mortgage payment held in an escrow account to pay taxes and insurance.
Fannie Mae:
The Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages.
FHA Mortgage:
A mortgage insured by the Federal Housing Administration.
FICO Score:
A credit score developed by Fair Isaac Corporation.
First Mortgage:
The primary lien against a property.
Fixed Installment:
A regular, unchanging payment made on a loan.
Fixed-Rate Mortgages (FRM):
Mortgages with a constant interest rate and monthly payments that don't change.
Fully Amortized ARM:
An adjustable-rate mortgage with payments that fully amortize over the loan term.
GNMA:
Government National Mortgage Association, also known as Ginnie Mae, which guarantees securities backed by mortgages that are insured or guaranteed by federal agencies.
Growing-Equity Mortgage (GEM):
A mortgage with increasing payments that result in the loan being paid off sooner.
Guarantee Mortgage:
A mortgage guaranteed by a third party, often a government agency.
Housing Expense Ratio:
The percentage of gross income that goes toward housing expenses.
HUD-1 Statement:
A standard form used to itemize services and fees charged to the borrower during the home-buying process.
Hybrid ARM (3/1-ARM, 5/1-ARM, 7/1-ARM):
An adjustable-rate mortgage with a fixed interest rate for an initial period before becoming adjustable.
Index:
A benchmark interest rate that reflects market conditions.
Initial Interest Rate:
The interest rate at the beginning of an adjustable-rate mortgage.
Installment:
A regular payment of a loan.
Insured Mortgage:
A mortgage with insurance to protect the lender against default.
Interest:
The cost of borrowing money.

Interest Accrual Rate:
The rate at which interest accrues on a mortgage.
Interest Rate Buy-down Plan:
A plan where an upfront payment is made to reduce the interest rate on a mortgage.
Interest Rate Floor:
The minimum interest rate on an adjustable-rate mortgage.
Late Charge:
A fee imposed for late payment on a mortgage.
Lease-Purchase Mortgage Loan:
A financing option that allows the tenant to buy the property after leasing for a certain period.
Liabilities:
Financial obligations or debts.
Lifetime Payment Cap:
The maximum amount the monthly payment can increase on an adjustable-rate mortgage.
Lifetime Rate Cap:
The maximum interest rate increase over the life of an adjustable-rate mortgage.
Line of Credit:
A flexible loan that allows borrowing up to a certain limit.
Liquid Asset:
An asset that can be quickly converted to cash.
Loan:
A sum of money borrowed with an agreement to repay it.
Loan-to-Value (LTV) Percentage:
The ratio of the loan amount to the property's appraised value.
Lock-In Period:
The time during which the lender guarantees a specific interest rate.
Margin:
The amount added to an index to determine the interest rate on an adjustable-rate mortgage.
Maturity:
The date when the principal balance of a loan becomes due.
Monthly Fixed Installment:
A regular, unchanging payment made on a monthly basis.
Mortgage:
A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor's property.
Mortgage Banker:
A company or individual that originates mortgages and sells them to investors.
Mortgage Broker:
An intermediary who connects borrowers with lenders.
Mortgage Insurance:
Insurance that protects the lender in case of borrower default.

Mortgage Insurance Premium (MIP):
The fee paid for mortgage insurance.
Mortgage Life Insurance:
Insurance that pays off a mortgage in the event of the borrower's death.
Mortgagor:
The borrower in a mortgage agreement.
Negative Amortization:
A situation in which the principal balance of a loan increases rather than decreases.
Net Worth:
The difference between assets and liabilities.
Non-Liquid Asset:
An asset that cannot be quickly converted to cash.
Note:
A legal document obligating a borrower to repay a mortgage loan.
Origination Fee:
A fee charged by a lender for processing a loan.
Owner Financing:
The seller provides financing to the buyer.
Payment Change Date:
The date when a new monthly payment amount takes effect.
Periodic Payment Cap:
The limit on the amount the monthly payment can increase at specified intervals.
Periodic Rate Cap:
The limit on the interest rate increase at specified intervals.
PITI Reserves:
Reserves set aside to cover the principal, interest, taxes, and insurance of a mortgage.
Points:
Fees paid to the lender at closing in exchange for a reduced interest rate.
Prepayment Penalty:
A fee for repaying a mortgage before the scheduled end date.
Pre-Approval:
A lender's conditional agreement to lend a specific amount.
Prime Rate:
The interest rate banks charge their most creditworthy customers.
Principal:
The amount of money borrowed.
Principal Balance:
The remaining amount owed on a loan.
Principal, Interest, Taxes, and Insurance (PITI):
The components of a monthly mortgage payment.
Private Mortgage Insurance (PMI):
Insurance that protects the lender if the borrower defaults on the loan.

Qualifying Ratios:
Ratios used by lenders to determine a borrower's ability to repay a loan.
Rate lock:
An agreement to lock in an interest rate for a specific period.
Real Estate Agent:
A licensed professional who represents buyers or sellers in real estate transactions.
Real Estate Settlements Procedures Act (RESPA):
A federal law regulating the settlement process and prohibiting certain practices.
Recording:
The act of entering documents concerning title to real estate into the public records.
Refinance:
Obtaining a new mortgage to replace an existing one.
Revolving Liability:
A credit arrangement where a borrower can repeatedly borrow and repay.
Secondary Mortgage Market:
The market where existing mortgages are bought and sold.
Security:
The property that is pledged as collateral for a loan.
Seller Carry-back:
The seller provides financing for part or all of the purchase price.
Servicer:
A company that collects mortgage payments and manages the borrower's escrow account.
Standard Payment Calculation:
The method used to determine monthly payments on an adjustable-rate mortgage.
Step-Rate Mortgage:
A mortgage with multiple interest rates and corresponding payments.
Third-Party Origination:
A process where a lender uses a third party to originate, process, underwrite, or close a loan.
Total Expense Ratio:
The ratio of housing expenses to borrower income.
Treasury Index:
An index used to determine interest rate changes for certain adjustable-rate mortgages.
Truth-in-Lending:
A federal law requiring disclosure of the terms and costs of credit.
Two-Step Mortgage:
A mortgage with a fixed interest rate for an initial period before becoming adjustable.
Underwriting:
The process of evaluating a loan application to determine its risk.
VA Mortgage:
A mortgage guaranteed by the U.S. Department of Veterans Affairs (VA), providing favorable terms and benefits for eligible veterans and active-duty military personnel.
"Wrap Around" Mortgage:
A financing arrangement in which an existing mortgage is retained, and an additional mortgage is combined to create a new, larger loan. The new mortgage "wraps around" the old one, with the borrower making payments on the larger loan to the holder of the wrap-around mortgage.