Comprehensive Glossary of Mortgage And Loan Financing Terms

Acceleration Clause: allows the lender to demand total payment of balance or additional payments under certain circumstances, such as neglecting to make a payment.

Accrued Interest: the amount of interested that has amounted since initial investment.

Adjustable Rate Mortgage: a mortgage in which the interest rate is adjusted periodically based on prices of indices.

Aggregate Adjustment: determines the amount of money in an escrow account at the closing to ensure that a proper amount of money is in the account.

Agreement of Sale: official document between a seller and a purchaser of real estate in which both parties agrees on the terms.

Amortization: increasing amount over a period of time, as in interest rates.

Annual Percentage Rate: the percentage of interest that will be charged per dollar of cost.

Application: an official request for a mortgage sent to a lender.

Assumption: when the buyer purchases a mortgaged property and assumes responsibility for the previous debt.

Balance: amount of original loan plus interest.

Balloon Mortgage: mortgage that does not fully amortize during payment, but after payment, leaving a large final payment.

Base Loan Amount: the initial amount of the loan on which the loan is based.

Blanket Mortgage: mortgage used to cover multiple properties.

Borrow: the amount of money you are requesting from the lender that will be paid back.

Bridge Loan: short-term loan, which can last anywhere from 2 weeks up to 3 years.

Cap: sets a limit on how much a monthly payment or interest rate can change per month.

Collateral: property promised by a borrower to a lender in exchange for a loan in case said loan defaults.

Construction Loan: loan which is used to pay construction costs.

Consumer Reporting Agency: any group that collects creditworthy information about consumers.

Convertibility: allows money or other financial instruments to be converted into other liquid values.

Credit Report: a record of a person's past borrowing and repayment. Includes late payment records and usually reports a credit score.

Deed: legal document which proves ownership to a property.

Default: a failure to repay a mortgage loan.

Depreciation: reduction of cost in an asset over time.

Due-on-Sale: clause sometimes included in a mortgage which requires that full payment be due upon sale of property; meant to secure the lender.

Earnest Money Deposit: good faith deposit that shows the seller how serious the buyer is about the property.

Effective Gross Income: total income of the property while taking vacancy loss and other costs into account.

Encumbrance: anything that limits the title of a property, such as a claim.

Equity: difference between the market price of a property and the mortgage or loan attached to said property.

Escrow: account established to hold funds for a principal until termination of the transaction.

Estate: net worth of a person, including property and entitlements.

Fair Market Value: estimated value of a real estate property.

Finders Fee: percentage given to buyer, seller, or lender for bringing them together.

Fixed Rate Mortgage: indicates that the interest rate on the mortgage remains the same throughout the course of the loan.

Foreclosure: when an individual who has taken out a mortgage must give property to bank because of failure to make payments.

Graduated Payment Mortgage: indicates a mortgage has payments that will rise over time.

Home Equity Loan: a loan in which a borrower uses the equity they've built in their property as collateral.

Housing Ratio: percentage ratio of a mortgage payment to gross income.

Index: database of averages of interest expenses of financial institutions.

Interim Financing: a short term loan used when long-term financing cannot or will not be considered.

Judgement: legal decree that may place a lien against debtor's property as collateral for the judgment's creditor.

Jumbo Mortgage Loan: a loan that exceeds the maximum amount usually loaned out by mortgage companies.

Lease Purchase: option which allows buyers to lease a property with an option to buy - each payment includes interest, principal, and insurance, plus savings for a down payment.

Lender: the bank, financial institution, or mortgage broker issuing the mortgage loan.

Lifetime Cap: a limit on the amount an adjustable-rate mortgage's payments can change over time.

Loan to Value Ratio: ratio used by brokers to determine the loan amount requested as a percentage of the value of a home. To find this, divide loan by home's value.

Lock Period: number of days or weeks that a lender can guarantee a lock on a percentage rate.

Margin: number of percentage points added to an index to determine the interest rate for an adjustable-rate mortgage.

Market Value: price for which a property would reasonably sell.

Mortgage: document which a borrower uses the value of a property as security for a loan.

Mortgage Broker: third-party that sells loans on behalf of another business, bank, or individual.

Mortgage Insurance: policy that insures lenders in case a property defaults and full payments cannot be made.

Mortgage Modification: when both lender and borrower modify the terms of a mortgage due to bankruptcy.

Net Effective Income: a borrower's gross income after federal income taxes have been subtracted.

Non-Assumption Clause: a clause that prohibits assumption by a third party without permission from the lender.

Non-conforming Loan: loan that does not mean bank's criteria.

Note: a written agreement that is signed by the borrower as a promise to pay the loan.

Offer: amount of payment an individual suggests to purchase a property, based on its market value.

Origination: process in which a lender creates a mortgage secured by secured by mortgagor's real property.

Origination Fee: a fee charged by a lender to cover fees an expenses for originating a loan.

Owner Financing: property transaction funded by the seller.

Permanent Loan: long-term loan of 10 years or longer.

Pledged Account Mortgage: a graduated payment mortgage in which the principal and interest payment are paid through a special savings account.

Points: fees that can be collected by a lender to lower interest rates.

Power of Attorney: legal document that allows an individual to appoint another person to act on their behalf.

Primary Mortgage Market: market where lenders and borrowers come together to negotiate mortgage terms.

Principal: actual balance of a loan minus interest.

Private Mortgage Insurance: private insurance policy that protects a lender in case a property defaults.

Qualifying Ratios: ratio used by lenders to determine the maximum mortgage to issue.

Rate: annual interest rate on a mortgage.

Rate Lock-In: situation in which the lender locks a specified rate for a period of time provided that the mortgage goes through in that time period.

Recording: public record of the details of the title of a property.

Rehabilitation Mortgage: a mortgage that is issued to repair or improve a property.

Refinancing: paying of a mortgage with a new mortgage.

Rescission: the cancellation of a mortgage contract.

Reverse Mortgage: a type of loan, usually for seniors, which releases equity in a property as multiple payments or a lump sum.

Secondary Mortgage Market: market that deals with the sale of securities or bonds collateralized by mortgages.

Servicing: supervising a loan after its been made.

Settlement: meeting of buyer, seller, real estate broker, and lender to finalize the process.

Special Forbearance: agreement between borrower and lender to reinstate a property that has 3 or more payments due.

Stated Income Loan: mortgage in which the lender does not look at borrower's income or pay stubs.

Survey: a fee for obtaining a measurement of a property by a surveyor.

Sweat Equity: a contribution to a property's construction via labor, not money.

Term: number of months that payments will be made on a mortgage.

Title: legal document that asserts a person's possession of a property.

Title Search: an examination of public records to determine the owner of a property.

Total Debt Ratio: calculation of total monthly housing expenses by monthly income.

Two-Step Mortgage: adjustable-rate mortgage that has one rate for the first 5-7 years and another rate for the remainder of the loan.

Underwriting: process that evaluates a borrower's loan application to determine any risk for the lender.

Usury: the charging of interest on loans.

Variable Rate Mortgage: mortgage in which the interest rate varies based on the market.

Warehouse Fee: fee charged by a mortgage company to offset costs incurred when the company originates loans that will then be sold in the secondary market.

Wraparound Mortgage: loan that includes the underlying balance of a first loan plus the second loan.

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