Mortgage Glossary


Appraisal
An estimate of the value of the property, made by a qualified professional called an "appraiser." An appraisal is required by your bank to determine how much money it will lend you.

Amortization Schedule
A schedule that provides a breakdown of the principal and interest payments, and the amount outstanding at any given point during the amortization period.

Amortization
The period of time during which you will owe interest and principal to your lender. Regular loan payments are calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Adjustable rate mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Assumable mortgage
A mortgage (on a home) that can be taken over by the buyer of the home.

Assumption
The agreement between buyer and seller in which the buyer takes over the payments on an existing mortgage from the seller.

Bi-weekly payment mortgage
A mortgage that requires payments to be made every two weeks (instead of monthly).

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Chain of title
The history of all of the documents that transfer title to a piece of real estate. Think of it as being a genealogy for the home since it was built.

Chattel
Another name for personal property.

Clear title
A title that is free of liens.

Closing
The meeting between the buyer, seller and lender or their agents at which the property and funds legally change hands. Also called 'settlement.' See also Closing Costs.

Closing costs
Expenses incurred by buyers and sellers in transferring ownership of a property. These may include an origination fee, taxes, the costs of obtaining title insurance, transfer fees, etc.

Collateral
An asset (such as a car or a home) that can be used to guarantee the repayment of a loan. You, the borrower, risk losing that asset if the loan is not repaid in a timely fashion.

Collection
The process of forcing a borrower to pay what he owes on a loan and, if it comes to that, to proceed with foreclosure.

Comps
The word is short for "comparable properties"—properties which have recently sold that are about the same size, in the same area, with similar amenities. These help both you and the appraiser figure out what your home ought to be worth.

Construction loan (or interim loan)
A loan to provide the funds necessary to pay for the construction of buildings or homes. The lender advances funds to the builder at periodic intervals as the work progresses.

Conventional loan
A mortgage not insured by the FHA or guaranteed by the VA.

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

Default
Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage. If this happens, you can end up losing the house.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Depreciation
A decline in the value of property over time.

Down payment
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional loans.

Earnest Money
Money given by a buyer to a seller as part of the purchase price, in order to bind a transaction or to assure payment.

Easement
A right of way giving people other than the owner access to a property.

Encroachment
An improvement that intrudes illegally on someone else's property.

Equity
The value an owner has in real estate over and above the obligation against the property. In other words, that portion of the property which the owner actually owns, having already paid for it. (It's also referred to as the owner's interest.) If a homeowner owns a house valued at $200,000.00 and has a mortgage of $50,000.00, the homeowner's equity is $150,000.00 (the value less the mortgage). As the value of the house increases or decreases, the homeowner's equity increases or decreases accordingly. The lender's equity is always equal to the value of the outstanding loan.

Escrow
Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property.

Federal Home Loan Mortgage Corporation (FHLMC), or "Freddie Mac"
A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal National Mortgage Association (FNMA), or "Fannie Mae"
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Fixed-Rated Mortgage
A mortgage on which the interest rate is set for the term of the loan, regardless of future interest rate fluctuations. This makes payments precisely predictable, but it is not always the cheapest alternative.

Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home equity line of credit
A loan against the amount of equity you may have in a property.

Home inspection
A complete and thorough inspection of the physical condition of a property, including all major systems and structural elements. It's conducted by someone who knows what to look for, and who will inform you of what he finds. If he turns up something you don't like and which the seller refuses to repair, you don't proceed with the purchase of the home.

Homeowner's insurance
An insurance policy, required when you take ownership, that combines personal liability insurance and hazard insurance for the home as well as its contents.

HUD-1 statement
A document which sets forth an itemized listing of whatever costs must be paid at closing, such as real estate commissions, loan fees, points, and initial escrow amounts. It's also known as the "closing statement" or "settlement sheet."

Interest
The amount of money, expressed as a percentage of the principal, charged for the use of the money borrowed.

Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum rate to which your loan can climb.

Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate to which your loan can sink.

Late charge
The penalty that must be paid by the borrower when a payment is late. This must be spelled out; make sure you know when you would incur such a charge.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage (Loan amount/Appraised Value).

Lock-in
A written agreement from the lender to offer a specified interest rate if the mortgage goes to closing within a set period of time (usually 30 - 60 days).

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mortgage
A legal contract that is registered against the title to a property in order to guarantee that a loan will be repaid.

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.

Note
The signed obligation to pay a debt, such as a mortgage note.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property, usually computed as a percentage of the face value of the loan.

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepayment
A privilege in a mortgage which permits the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller one - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on you loan's structure.

Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract (in some cases) once it is signed, if the transaction uses equity in the home as security.

Refinance
Obtaining a new mortgage loan on a property already owned, often to replace existing loans on the property.

Sale Price
The price at which the house actually sold. By noting the difference between the sale price and the listing price in houses that have recently sold, comparable to the one you're interested in, you can get an idea of how much below the asking price you might be able to offer.

Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market
The market in which primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan.

Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

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