Mortgage Glossary

Listed below are some terms and definitions commonly used during the loan processing period.
Adjustable Rate Mortgage ARM
A mortgage loan which bears interest at a rate subject to change during the term of the loan, based on a specific index.
Amortization
The paying off of a financial obligation on an installment basis,over a period of time.
Assessed Value
Typically, the value placed on property for the purpose of taxation.
Assignment of Mortgage
A document showing the transfer of ownership of a mortgage from one person to another.
Balloon Mortgage
A mortgage that is not completely paid off over the loan term (such as five, or ten years), leaving a balance at the end. The borrower must either pay off the remaining mortgage or refinance the loan.
Collateral
In the case of a mortgage, the collateral would be the house and real property. The borrower risks losing the property if the loan is not repaid according to the terms of the loan.
Construction Loan
A short-term loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Conventional Mortgage
A mortgage loan that is not insured or guaranteed by the federal government.
Convertible ARM
An adjustable rate mortgage that allows the borrower to change the ARM to a fixed rate mortgage under specific terms.
Credit Bureau
A company that gathers information on consumers who use credit.
Credit Score
A numerical value that assesses a borrower’s credit risk based on a statistical analysis of information in the person’s credit history that has been proven to be predictive of future loan repayment.
Default
Failure to fulfill an obligation; make payment or comply with specific terms of a mortgage.
Delinquency
Failure to make mortgage payments by the due date.
Down Payment
A percentage of the purchase price of the property not financed by a mortgage.
Foreclosure
A legal process that ends all ownership rights in a home when the homebuyer fails to make the mortgage payments or is in default under the terms of the mortgage. This usually results in a forced sale of the property to settle outstanding mortgage debt.
Loan Origination Fees
Fees paid to a mortgage broker for processing the mortgage application.
Loan to Value Ratio
The percentage of a property’s value that a lender may loan to a borrower.
Lock-In Rate
A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time.
Maturity Date
The date on which a mortgage loan is scheduled to be paid in full.
Mortgage
A loan using the home as collateral. A legal document by which property is pledged to secure the payment, and terms of a loan.
Payment Cap
The limit on the amount that payments can increase or decrease during any one adjustment period for an adjustable rate mortgage ARM.
Point
One percent of the amount of the mortgage.
Preapproval
A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close.
Prepayment
Amount/s paid to reduce the principal balance of a loan before the due date.
Prepayment Penalty
The fee payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity.
Principal
The amount of money loaned. This does not include the interest charged for borrowing said money.
Private Mortgage Insurance
Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower.
Promissory Note
A written promise to repay a specific amount over a specified period of time.
Rate Cap
A limit on the amount the interest rate can increase or decrease on an adjustable rate mortgage (ARM).
Refinance
Obtaining a new mortgage with all or some portion of the proceeds used to pay off the prior mortgage.
Repayment Plan
An arrangement between the lender and borrower in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.
Second Mortgage
A mortgage that has a subordinate lien position to that of the first mortgage.
Secondary Mortgage Market
A market in which mortgage loans and mortgage-backed securities are traded.
Settlement Statement
A document listing all closing costs on a mortgage transaction.
Short Sale
The sale of a home for less than the loan balance, subject to bank/lender’s approval.
Transfer Tax
State or local tax payable when title to property passes from one owner to another.
Underwriting
Underwriting is the process used to determine loan approval. It involves evaluating the property and the borrower’s ability to pay the mortgage.
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