Mortgage Glossary

Acceleration - Typically associated with overdue payments or failure to perform as promised under a mortgage contract. The lender would then request or demand early payments or the entire payment of the mortgage.

Adjustable Rate Mortgage (ARM) - An ARM is different from a traditional fixed rate mortgage since the interest rate fluctuates during the lifespan of the loan in conjunction with movements in the index rate.

Amortization - This is the length of time it takes to pay a loan off.

Annual Percentage Rate (APR) - This states the total annual cost of a mortgage expressed by the actual rate of interest paid.

Appraisal - This is the process to determine the market value of a property.

Appraiser - This is a person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation - This is an increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Asset - This is anything of monetary value that is owned by a person. The assets include real property, personal property, and enforceable claims against others including bank accounts, stocks, mutual funds, etc..

Assumable Mortgage - If there is a house that is sold with an assumable mortgage, that means the buyer gets the house and takes over the terms of the loan. The buyer can assume the terms without being qualified or the loan can be a Qualifying Assumable Loan--while the buyer may take over the terms of the mortgage, they must be qualified as if they were applying for a brand new loan.

Assumption - This is the transfer of the seller's existing mortgage to the buyer.

Assumption Clause - This is a provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. This loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee - This is the fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Balance Sheet - This is a financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage - This is where the remaining balance must be paid in full at the end of a pre-set term.

Bankrupt - This is 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.

Beneficiary - This is a person designated to receive the income from a trust, estate, or a deed of trust.

Biweekly Payment Mortgage - This is 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.

Bond - This is an interest-bearing certificate of debt with a maturity date. This is 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 - This is a violation of any legal obligation.

Bridge Loan - This is 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. This is also known as a "swing loan."

Broker - This is a person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown Mortgage - The 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 - This is 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 any reason.

Cap - This is a provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capital Improvement - This is any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-Out Refinance - This is 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. Otherwise a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of Eligibility - This is 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) - This is 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 - This is 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 - This is the history of all of the documents that transfer the title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency - This is the frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear Title - This is a title that is free of liens or legal questions as to ownership of the property.

Closing - This is a meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. This is also called "settlement."

Closing Cost Item - This is a fee or amount that a home buyer must pay at closing for a single service, tax, or product. The closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many of the closing cost items are included as numbered items on the HUD-1 statement. There are also expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. The 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. The closing costs percentage will vary according to the area of the country.

Closing Statement - This is also referred to as the HUD-1 which is the final statement of costs incurred to close on a loan or to purchase a home.

Cloud on Title - These are any conditions revealed by a title search that adversely affect the title to the real estate. Typically clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Collateral - This is 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 - These are efforts used to bring a delinquent mortgage up to date and to file the necessary notices to proceed with foreclosure when necessary.

Combination Loan - With this type of loan, a person receives a first mortgage for 80% of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important, consider combination loans--known as 80/10/10 loans or 80/20's.

Combined Loan-to-Value (CLTV) - This is the unpaid principal balances of all the mortgages on a property (usually first and second) divided by the property's appraised value.

Co-Maker - This is a person who signs a promissory note along with the borrower. The co-maker's signature guarantees that the loan will be repaid since the borrower and the co-maker are equally responsible for the repayment. Also see endorser.

Commission - This is the fee charged by a broker or agent for negotiating a real estate or loan transaction. The commission is generally a percentage of the price of the property or loan.

Commitment letter - This is a formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. This also known as a "loan commitment."

Common Areas - These are 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. These 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 - This is an alternative financing option that allows low and moderate income home buyers to obtain 95% financing for the purchase and improvement of a home in need of modest repairs. This repair work can account for as much as 30% of the appraised value.

Community Property - In some western and southwestern states, community property is 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 - This is an abbreviation for "comparable properties" which is used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration. They reasonably have 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 - This is 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 - This is the changing of the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conforming Loan - The current conforming loan limit is $417,000 and below. The conforming loan limit change annually.

Construction Loan - This is 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) - This is 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 and from other sources.

Contingency - This is a condition that must be met before a contract is legally binding. For instance, 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 - This is an oral or written agreement to do or not to do a certain thing.

Conventional Mortgage - This is a mortgage that is not insured or guaranteed by the federal government.

Convertibility Clause - This is a provision in some adjustable-rate mortgages (ARMs) that allow the borrower to change the ARM to a fixed-rate mortgage at specific timeframes after loan origination.

Convertible ARM - This is an adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specific conditions.

Cooperative (Co-op) - This is a type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that own the property, giving each resident the right to occupy a specific apartment or unit.

Corporate Relocation - These are 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 since it is relocating its headquarters or expanding its office capacity.

Cost of Funds Index (COFI) - This is an index that is used to determine interest rate changes for certain ARM plans. This 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 - This is a clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit - This is 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 - This is a record of an individual's open and fully repaid debts. Credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Report - This is a report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.

Credit Repository - This is 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 - This is an amount owed to another.

Deed - This is the legal document conveying the title to a property.

Deed-in-Lieu - This is a deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed of Trust - This is a document used in some states instead of a mortgage. The title is conveyed to a trustee.

Default - This is the failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency - This is the failure to make mortgage payments when mortgage payments are due.

Deposit - This is 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 - This is a decline in the value of property; the opposite of appreciation.

Down payment - This is 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 - This is a provision in a mortgage that allows the lender to demand full repayment if the borrower sells the property that serves as security for the mortgage.

Earnest Money Deposit - This is a deposit made by the potential home buyer to show that they're serious about buying the house.

Easement - This is a right of way giving persons other than the owner access to or over a property.

Effective Age - This is an appraiser's estimate of the physical condition of a building. The