Mortgage 101

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Mortgage Terms and Definitions

We have assembled these terms to help you to have a better understanding of mortgage financing. Please feel free to call us at 888 369-9660 for more information as well as a competitive array of real estate financing plans.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

– A – TOP
Abstract (of title) A written summary of the title history of a particular piece of real estate.
Acceleration Clause A provision of a mortgage or note which provides that the entire outstanding
balance will become due and payable in the event of default.
Adjustable Rate Mortgage (ARM) A mortgage in which the interest rate is adjusted periodically, based
on the movement of a financial index.
Amortization Repayment of loan by installment payments. As the payments are made, the
debt is reduced so that at the end of fixed period or term, no money will
be owed.
Annual Percentage Rate (APR) The annual percentage rate refers to the total cost of the loan, expressed
as a yearly rate.
Application Fee That part of the closing costs pre-paid to the lender at time of application
to cover initial expenses.
Appraisal A report made by a qualified person as to the value of a property as of
a given date.
Assessed Value The value placed on a piece of real estate by the taxing authority for
the purpose of taxation. Also called an assessment.
Assumption of Mortgage The purchaser takes over mortgage payments for the balance of the loan,
assuming primary liability. Unless specifically released by the lender,
the seller remains secondarily liable.
– B – TOP
Balloon Mortgage A mortgage with periodic payments that do not fully amortize the loan.
The outstanding balance of the mortgage is due in a lump sum at the end
of the term.
Bridge Loan A short-term loan secured by the equity in an as-yet-unsold house, with
the funds to be used for a down payment and/or closing costs on a new house.
There is no payment of principal until the house is sold or the end of the
loan term, whichever comes first. Interest payments may or may not be deferred
until the house is sold.
Broker The person who, for a commission or a fee, brings parties together and
assists in negotiating contracts between them.
Buydown Money advanced by an individual (e.g. builder, seller, buyer, lender,
developer) to lower monthly mortgage payments for a few years or the whole
term.
– C – TOP
Cap (interest rate) The maximum interest rate increase allowable on an adjustable rate mortgage.
Does not result in negative amortization. See Negative amortization.
Cap (payment rate) The maximum payment amount increase allowable on an adjustable rate mortgage.
May result in negative amortization. See Negative amortization.
Certificate Of Title A statement that shows ownership of property, stating that the seller
has clear legal title.
Closing The concluding day of the real estate transaction, when title and deed
pass from seller to buyer, the buyer signs the mortgage and pays the purchase
price and closing costs.
Closing Costs Expenses (over and above the price of the property) incurred by buyers
and sellers in transferring ownership of a property. Also called “settlement
costs.”
Closing Statement A financial disclosure giving an account of all funds received and expected
at closing, including the escrow deposit for taxes, hazard insurance and
mortgage insurance for the escrow account.
Commission An agent’s or broker’s fee for bringing the principals together and helping
to negotiate a real estate transaction, often a percentage of the sales
price or flat fee.
Commitment An agreement, frequently in writing, between a lender and a borrower to
loan money at a future date, subject to certain conditions.
Comparables Refers to similar properties used for comparison purposes in the appraisal
process. These properties will be reasonably the same size and location,
with similar amenities and characteristics, so that the approximate fair
market value of the subject property can be determined.
Condominium Ownership of a single unit in a multiunit building or complex of buildings.
Along with this goes a share of ownership of the common areas.
Contingency A condition that must be met for a contract or a commitment to remain
binding.
Conventional Mortgage Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded
by a government authorized bond sale or grant.
Convey To transfer real estate from one person to another.
Credit Report The report to a prospective lender on the credit standing of a prospective
borrower.
– D – TOP
Deed A legal written document by which title to property is transferred.
Default Failure to fulfill the terms as agreed to in the mortgage of note.
Down Payment The difference between the sale price of a property and the mortgage amount.
Due-On-Sale A clause in a mortgage which gives the lender the right to require immediate
repayment of a mortgage balance if the property changes hands.
– E – TOP
Earnest Money The deposit money given to seller or his agent by the potential buyer
at the time of the purchase offer. If the offer is accepted, the money will
become part of the down payment.
Easement A right to the limited use of land owned by another. An electric company,
for example, could have an easement to put up electric power lines over
someone’s property.
Encumbrance Anything that affects or limits the title to a property, such as outstanding
mortgages, easement rights or unpaid back taxes.
Equity The value in which the owner has in real estate over and above the mortgages
against it. When the mortgage and all other debts against the property are
paid in full, the owner has 100% equity in his property.
Escrow Funds and/ or deed left in trust to a third party. Generally, a portion
of the monthly mortgage payment is held in escrow by the lender to pay for
taxes, hazard insurance and yearly mortgage insurance premiums.
– F – TOP
First Mortgage A mortgage that has a primary lien against a property.
Fixed-Rates Mortgage A mortgage with an interest rate and monthly payments that remain constant
over the life of the loan.
Fixture Property, such as a hot water heater or plumbing fixture, that has become
permanently attached to piece of real estate and goes with the property
when it is sold.
Flood Certification An independent agency report required by the lender to determine whether
a property is located in a flood hazard zone, which would then require a
federally mandated flood insurance policy.
Foreclosure A legal procedure in which property mortgaged as security for a loan is
sold to pay the defaulting borrower’s debt.
– G – TOP
Graduated PaymentMortgage A fixed rate loan with monthly payments that start low, increasing by
a fixed amount for a specific number of years. After that period, the payments
typically remain constant for the duration of the loan.
Gross Income Normal income, including overtime, prior to any payroll deductions, that
is regular and dependable. This income may come from more than one source.
– H – TOP
Hazard Insurance Insurance protection against damage to a property from fire, windstorms,
and other common hazards.
Homeowner’s Insurance An insurance policy that covers the dwelling and its contents in case
of fire or wind damage, theft, liability for property damage and personal
liability.
HUD-1 Form See Real Estate Settlement Statement.
– I – TOP
Income Property Real estate that is owned for investment purposes and not used as the
owner’s residence.
Interest A charge paid for the use of money.
Interim Financing See Bridge Loan.
– J – TOP
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– K – TOP
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– L – TOP
Land Contract When the buyer agrees to make payments directly to the seller at pre-negotiated
terms. The seller agrees to deed the property to the buyer upon completion
of the agreement. The buyer becomes the owner of equity in this type of
sale. (Also see Owner Financing)
Lien A legal claim on a property used as security for a debt.
Loan-To-Value Ratio The relationship between the amount of the mortgage and property value,
usually shown as a percentage.
– M – TOP
Market Value The price at which a property will sell, assuming a knowledgeable buyer
and seller, both operating without undue pressure.
Mortgage A contract in which a borrower’s property is pledged as security for a
loan which is to be repaid on an installment basis.
Mortgage Note A written promise to pay a debt at a stated interest rate during a specified
term. The agreement is secured by a mortgage.
Mortgagee The lender in a mortgage contract.
Mortgagor The borrower in a mortgage contract.
– N – TOP
Negative Amortization A loan in which the outstanding principal balance goes up instead of down
because the monthly payments are not large enough to cover the full amount
of interest due. Also called deferred interest.
– O – TOP
Offer to Purchase A written proposal to buy a piece of real estate that becomes binding
when accepted by the seller. Also called a sales contract.
Origination Fee A fee charged for the work involved in the evaluation preparation and
submission of a proposed mortgage loan.
Owner Financing A purchase in which the seller provides all or part of the financing.
– P – TOP
PITI An acronym for payments to lender that cover principal, interest, taxes
and insurance on a property.
Plat A map of a piece of land showing boundary lines, streets, actual measurements
and easements.
Point A fee paid to the lender on closing day to increase the effective yield
of the mortgage. A point is one percent of the amount of the mortgage loan.
Also called a discount point.
Prepayment Penalty A charge paid to the lender by the borrower if a mortgage loan is repaid
before its term is over.
Pre-Approval A commitment by a lender to extend credit provided that specific conditions
are met.
Pre-Qualification A preliminary assessment of a buyer’s ability to secure a loan, based
on a specific set of lending guidelines and buyer representations made.
This is not a guarantee or commitment by a lender to extend credit.
Prime Rate The interest rate charged by banks to their preferred corporate customers,
it tends to be an estimator for general trends in short term interest rates.
Principal The amount borrowed or remaining unpaid; also, that part of the monthly
payment that reduces the outstanding balance of a mortgage.
PMI (Private Mortgage Insurance) Insurance written by a private company to protect the lender against loss
caused by mortgage default.
– Q – TOP
Qualifying Ratios Guidelines applied by lenders to determine how large a loan to grant a
home buyer.
– R – TOP
Real Estate Settlement Statement Final settlement statement often referred to as the HUD-1 form, used to
itemize buyer, seller, broker, and lender charges and credits at closing.
Realtor A real estate broker or sales associate affiliated with the National Association
of Realtors.
Recording Fee The charges made by the register of deeds to record the legal documents.
Refinancing Repaying a debt with the proceeds of a new loan, using the same property
as collateral or security.
– S – TOP
Second Mortgage A loan on property which already has an existing mortgage(the first mortgage).
The second mortgage is subordinate to the first.
Secondary Mortgage Market The buying and selling of existing mortgages through agencies (i.e. Fannie
Mae, Freddie Mac).
Survey A map prepared by an engineer or surveyor charting a particular piece
of real estate.
– T – TOP
Title Ownership of a property. A clear title is one without any outstanding
liens or encumbrances. A cloud on title refers to any outstanding liens
or encumbrances which could impair the title.
Title Insurance Policy Protection against financial loss arising from defects in the title occurring
before purchase.
Title Search A check of public record to disclose the past and current facts regarding
ownership of a particular piece of property.
Transfer Tax In some areas city, county or state taxes imposed when property passes
from one person to another.
Truth-In-Lending A federal law that requires lenders to fully disclose, in writing, the
terms and conditions of a mortgage, including the APR and other charges.
– U – TOP
Underwriting The process of evaluating a loan application to determine the risk involved
for the lender.
– V – TOP
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– W – TOP
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– Y – TOP
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– Z – TOP
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Thank you very much for your handling of our refinance. Your professionalism should be commended. I have had probably four loans for homes in my lifetime. By far you were the most helpful and genuine. Have a nice holiday season!

—David King

Thank you so much for helping us every step of the way. You provided us with such excellent and personal customer service, and made the whole process smooth and easy, and we appreciate it.

—Leni and Ricardo Carlos

Carrie and I would like to express our deepest heart felt gratitude to each of you for assisting us in making our dream come true. I appreciate the personal touch given to us.

—Glen and Carrie Hull

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