Mortgage Glossary

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.

ARM (Adjustable Rate Mortgage)

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.

APR (Annual Percentage Rate)

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.

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.

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 Disclosure

Replaces the HUD-1 Settlement Statement. It is the final disclosure generated by the lender for use in comparing the Loan Estimate against the final costs and fees for the loan scenario. It includes any credits and charges associated with the particular loan transaction.

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.

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.

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 property 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.

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.