Glossary Of Mortgage Terms

The amount of mortgage interest that has been earned but not yet paid.

The time between interest rate adjustments of an adjustable rate mortgage (ARM).

This is the combined annual income for you and your co-borrower.

The price requested by a seller when a home or property is listed for sale. This amount is often open to negotiation.

A mortgage that may be “taken over” by a qualified third party. Most assumable mortgages are government-backed products like VA, FHA and USDA home loans.

A clause informing borrowers that they cannot assume a home loan without agency approval.

A clause informing buyers that they must agree to assume all of the obligations of the original borrower under the terms of the instruments creating and securing the loan.

A proceeding in a federal court in which a borrower who owes more than his or her assets, can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.

A process in which two or more parties attempt to get their offer accepted by a seller, usually by making repeated offers at higher amounts.

A borrower is a buyer who does not pay cash, but instead finances some or all of a purchase.

The break-even point is the point at which the monthly savings created by a mortgage refinance offsets the cost of refinancing. It can also refer to the point at which the savings generated by paying discount points covers the cost of those points.

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be used for any purpose.

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be used for any purpose.

The procedure at the end of a property sale or refinance in which funds legally change hands and public records are filed. Closing is also called settlement.

Closing costs include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.

The fee charged by an agent or broker for representing a buyer or seller’s interest. A commission is generally a percentage of the sales price.

A report prepared by a real estate agent that determines a house's market value. The agent compares the house's attributes to similar properties in the area that have recently sold or are still on the market. The CMA is often used to establish the listing price.

Insurance which covers damage to a vehicle caused by events other than a collision, such as flood, fire, hail, theft, or vandalism.

Individually-owned unit within a multi-unit development or complex, including an individual interest in the common areas and facilities used by the owners.

An association of unit owners in a condominium building. The association elects a board of directors, which handles the maintenance and repair of common areas, disputes among unit owners, and enforcement of rules and regulations, and condominium fees.

Also called maintenance fees, the monthly fees paid by all condominium owners. The condominium fees go toward the maintenance and repair of common areas in the building, as well as salaries for groundskeepers, repairmen and security guards. The condominium fees are set and managed by the condominium association, and are typically determined based on the size of your unit.

A conforming loan is any loan that meets the criteria and limits set forth by the two largest buyers of loans, Fannie Mae and Freddie Mac.

Replacing several debts or loans by transferring the balances to a single loan or line of credit, usually at a better rate. (Debt consolidation loans are often home equity loans or lines.)

A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.

A consumer loan is when a person borrows money from a lender, either unsecured or secured. There are several types of consumer loans and some of the most popular ones include mortgages, refinances, home equity lines of credit, credit cards, auto loans, student loans, and personal loans.

A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.

Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.

A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Another person who signs your loan and assumes equal responsibility for it.

A set of rules and regulations governing a condominium building. The CC&Rs can include restrictions on things such as noise levels, pet ownership, and renovations. These rules are enforced by the condominium association.

The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

The record of how you've borrowed and repaid debts.

A credit limit is the maximum amount of charges that may be charged to an account.

A credit ratio is expressed as a percentage and results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans).

The initial attractiveness of a property, when viewed from the road. Sellers and real estate agents will often try to increase the curb appeal of a home by cleaning up the porch, trimming plants along a walkway, or giving the outside of a home a fresh coat of paint.

When referring to a loan, such as an auto loan or a mortgage, your current balance is the amount you currently still owe on the loan according to the date of your statement.

Debt consolidation is a process by which several debts are replaced by one debt. The idea is to simplify repayment and hopefully make it more affordable as well.

Failing to repay a debt as agreed. Defaulting on an obligation can have serious consequences, including but not limited to lawsuits, eviction, collections, derogatory credit history, late fees, auto repossession, wage garnishment, home foreclosure and / or being forced into bankruptcy. When borrowers default on mortgages, lenders must file a Notice of Default (NOD) or Lis Pendens (a notice that there may be litigation related to the property) before they can proceed with foreclosure. Once the notice has been filed, borrowers have a limited amount of time to “cure” the default by bringing their mortgage current or coming to some agreement with the lender. The NOD is a publicly recorded document.

Interest that has accrued but not been paid. Mortgage interest is paid in arrears, which means the borrower does not pay it in advance. Mortgage payments cover interest that is already owed to the lender. “Deferred interest” accumulates when a loan payment is not large enough to cover all the interest due.

Decline in value of a house or car due to wear and tear, adverse changes in the neighborhood, or any other reason.

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

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

The amount an article (such as property or an automobile) would sell for on the open market, barring any constraints such as a need to sell or buy quickly. The fair market value for real estate is often determined by examining the range of selling prices for similar homes in the current economic climate.

Notice to VA home loan borrowers of actions the government can take in the event that they default on their VA-backed home loans. These include but are not limited to confiscating tax refunds and retirement benefits.

The federal funds rate is extremely important to the U.S. economy because it is the interest rate that commercial banks, also called depository institutions, charge to other lending institutions who are taking out short-term loans, usually overnight.

An FHA loan requires a 3.5 percent down payment on the purchase price of the loan.

The FHA loan limit is the maximum loan amount you can get for an FHA loan, which varies depending on the area you live in.

FHA mortgage insurance protects lenders from losses in the event that borrowers default on their FHA mortgages. Without FHA insurance coverage, few lenders would be willing to fund home loans with minimal down payments to borrowers with low-to-moderate incomes or past credit problems.

MIP stands for mortgage insurance premium and is required to close an FHA loan. It is paid as an upfront cost and as an annual premium.

The total cost of credit for a mortgage. This is shown on the Truth-in-Lending disclosure, or TIL. This is a dollar amount and includes all charges associated with a home purchase that would not be incurred if the home buyer paid cash.

A category of mortgage characterized by an interest rate that does not change over the life of the loan.

A legal remedy for non-payment of a mortgage debt. The lender takes and sells the property to cover amounts owed. Any remaining proceeds are returned to the borrower.

Freddie Mac is the smaller of two government-sponsored enterprises (GSEs) created by Congress. (The larger one is Fannie Mae.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Freddie Mac are called “conforming” mortgages. Freddie Mac is also known as the Federal Home Loan Mortgage Corporation.

A disclosure that lenders must by law issue to mortgage applicants within three business days of their loan application date. The three-page GFE lists settlement charges and the terms of the mortgage.

The Home Affordable Refinance Program (HARP) was created by the federal government in April of 2009 to allow eligible homeowners with little home equity, no home equity or even negative home equity to refinance to lower mortgage rates. The program is set to expire on December 31, 2015.

Home equity is the difference between the market value of a home and any outstanding mortgage balance(s). A homeowner with a $200,000 property and a $150,000 mortgage balance has $50,000 in home equity.

A home equity line of credit (HELOC) is a type of secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.

A home equity loan is also called a second mortgage. It allows the homeowner to borrow against home equity (which is the difference between the property value and the mortgage balance(s) against it). The home equity loan delivers a lump sum at closing and is repaid in monthly installments. Most home equity loans have fixed rates, but some are adjustable.

A home price is either the purchase price or the property's appraised value, whichever is the lower of the two.

The contract outlining the agreed-upon price and terms for the purchase of a home. Also called an agreement of sale, a purchase contract, or a sale contract.

This is your estimate of the current value of your property.

U.S. Department of Housing and Urban Development. The Federal Housing Administration (FHA) within HUD insures home mortgage loans made by lenders and sets minimum standards for FHA loans.

In-house financing refers to the practice of banks keeping a mortgage loan they write rather than selling it to a third party such as Fannie Mae or Freddie Mac.

The dollar amount of interest paid over the life of a loan.

Interest due is the amount of money required to cover the interest cost for that payment period. Also referred to as “accrued interest.”

The percentage of a loan amount that it costs to borrow money.

The amount of time between interest rate adjustments of adjustable rate mortgages (ARMs).

This is also referred to as a lifetime cap. It’s the highest interest rate that an adjustable rate mortgage can go over its entire term.

An interest rate decrease cap is the most your interest rate can drop on an adjustable rate mortgage.

An interest rate floor is the minimum interest rate possible for an adjustable rate mortgage.

An interest rate increase cap limits the amount an ARM rate can rise during one adjustment period.

The index is a published benchmark rate used by lenders to set adjustable rate mortgage (ARM) interest rates.

A jumbo mortgage is a mortgage with a loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Currently the 2017 limit is set at $424,100 for most areas (subject to change). Special areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a higher limit of $636,150 (subject to change). Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate; usually .25% to .50% higher than that of a conforming loan.