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Your Mortgage Glossary


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Adjustable Rate

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. See Adjustable Rate Mortgages (below).

Adjustment Interval

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment. Typically, one or three years, depending on the index.

Adjustable-rate mortgage (ARM)

A mortgage having an interest rate that can change at designated intervals, based on a financial index. 


The gradual reduction of the principal of a mortgage by scheduled installment payments.

Amortization schedule

A schedule that shows the portions of each payment that are applied to interest and to principal. It also shows the loan balance remaining after each payment.

Annual Percentage Rate (APR)

A rate that reflects the actual annual cost of a loan, incorporating the loan interest rate, private mortgage insurance, points and fees.

Application Fee

The amount a lender charges for processing a loan application: may be nonrefundable.


A professional assessment of the market value of a property.

Appraisal Fee

A fee usually paid to the lender when applying for a loan to cover the cost of having an appraiser perform an appraisal.


Increase in value of a property.


See adjustable-rate mortgage.

Assessed value

The value placed on a property by local officials for taxation purposes (may or may not equal appraised value).


The transfer of property rights by one person, known as the assignor, to another, known as the assignee.

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In insurance, an agreement confirming temporary coverage pending issuance of a formal policy.

Bi-weekly mortgage

A mortgage in which payments are made every two weeks instead of monthly, thus making the equivalent of 13 monthly payments a year (there are 26 two-week periods) instead of 12. Allows more rapid payment of mortgage and thus less interest paid over the life of the loan. Currently not available.


An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

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A limit set on an ARM as to how much the interest rate or monthly payments may increase.

Cash Out

Receiving money back when refinancing your present mortgage.

Cash Reserve

A requirement of some lenders that the buyer have enough cash left after closing to make the first two mortgage payments.


The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certified Check

A check drawn on the issuer's account but for funds that have been segregated by the bank, guaranteeing payment.

Clear Title

A title to property that is free of liens and legal questions as to ownership.


The legal procedure in which the transfer of property becomes final. Also called settlement.

Closing Costs

Costs incurred by the buyer and seller in transferring ownership of a property.

Closing Statement

A statement showing the various closing costs and recording of which party paid these costs. Also called settlement statement.

Commitment Letter

A lender's formal notice to a borrower that a loan has been approved; states the terms and conditions of the loan.

Community Home Buyer's Program

An alternative financing option that allows moderate-income households to qualify for loans. It allows 33 percent housing-to-income and 38 percent debt-to-income ratios, as well as nontraditional credit histories and waiver of cash reserve requirements at closing.

Community Property

Property acquired by the husband and wife during a marriage when not acquired as separate property by either spouse. Each spouse has equal rights, including the rights of survivorship.


A form of property ownership in which the owner holds the title to an individual dwelling, plus interest in common areas of a multi-unit project.

Condo Fee (or homeowners association dues)

The monthly maintenance fee condominium unit (planned unit development) owners must pay to cover common-area expenses.

Conforming Loan

Generally, a mortgage with a loan amount under the maximum limits set by FNMA and FHLMC. Qualifying ratios and underwriting methods are standardized to a large degree.


A condition that must be met before a contract is legally binding.

Contract of Sale

The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Conventional Mortgage

Any mortgage that is not insured or guaranteed by the federal government.


A person who signs and assumes joint liability with another person for repayment of a debt.


A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.


The transfer of an interest in realty: a deed. Sometimes includes leases and mortgages.

Credit Limit

The maximum amount that you can borrow under a home equity plan.

Credit Report

A report of an individual's credit history prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Credit Report Fee

A fee usually paid to the lender at the time of loan application to cover the cost of the credit report.

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Debt Service

The total amount of credit card, auto, mortgage, or other debt upon which you must pay every month.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts, plus the proposed housing payment, is divided by his or her gross monthly income.


The legal document conveying title to a property.

Deed of Trust

The document used in some states instead of a mortgage; title is conveyed to a trustee instead of the borrower.


To fail to make mortgage payments on a timely basis or to comply with other mortgage conditions.


Failure to make a loan payment on time; the loan is not yet in default.


Cash the buyer pays to the seller when both sign a formal sales contract.


A decline in property value; opposite of appreciation.

Document Preparation Fee

A fee paid to the lender or title company/attorney for the preparation of settlement documents.

Down Payment

The part of the purchase price of a home, which the buyer pays in cash upfront; not included in the loan.

Due on Sale

A clause in a mortgage agreement providing that, if the mortgagor sells, transfers, or, in some instances, encumbers the property, the mortgagee has the right to demand the outstanding balance in full.

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Earnest Money

A deposit given to the seller by the buyer when submitting an offer to show serious intent about buying a property.


The right-of-way granted to a person, company, or state/ federal agency authorizing access to the owner's land. For example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement or can be ordered to grant one by a local jurisdiction.

Equal Credit Opportunity Act (ECOA)

A federal law prohibiting lenders from denying loans on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.


The difference between the market value of a property and the owner's outstanding mortgage balance; measures the degree of ownership.


The holding of documents and money (such as a deposit) by a neutral third party prior to closing. Also an account held by the lender into which a homeowner pays money for taxes and insurance.

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Fannie Mae (FNMA)

An acronym for the Federal National Mortgage Association. Fannie Mae purchases mortgage loans originated by local lenders and sets guidelines that lenders must follow to qualify prospective borrowers.

Fee Simple

Absolute ownership of real property.

FHA Loan

A mortgage insured by the Federal Housing Administration. Down payment may be as little as 3.50%, but purchase price is limited.

First Mortgage

A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed-Rate Mortgage

A mortgage in which the interest rate does not change during the entire life of the loan.

Flood Insurance

Insurance that will be required if a property is in a federally designated flood hazard area.


The legal process by which a mortgaged property may be sold when a mortgage is in default.

Freddie Mac (FHLMC)

An acronym for the Federal Home Loan Mortgage Corporation. Another of the major purchasers of mortgages from local lenders. See also Fannie Mae.

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Good Faith Estimate

A written estimate of closing costs provided by lender within three days after someone applies for a loan.

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Hazard Insurance

Insurance to protect the homeowner and lender against physical damage to property from fire, wind, vandalism and other hazards.

Home Equity Line of Credit

A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan

A loan based on the borrower's equity in his or her home.

Home Inspection

A home inspection is performed by a qualified home inspector to determine the structural soundness and condition of the home, at the request of a purchaser, seller, or lender. The inspector will provide a report outlining the condition of the home and what repairs, if any, are necessary before the loan may be closed.

Homeowner's Insurance

An insurance policy that combines hazard insurance and liability coverage.

Homeowners Warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

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A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of Banks or the average rate of a one year Government Treasury Security.


The cost for borrowing money.

Interest Rate Cap

A provision of an ARM that limits how much the interest rate can increase per adjustment period.

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Joint Liability

Liability imposed upon two or more persons.

Joint Tenancy

The ownership of property by two or more persons with the survivor taking the interest of the deceased.

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Late Charge

The penalty a borrower must pay when a payment is made after the due date.


A legal claim against a property that must be paid when a property is sold.

Lifetime Cap

A provision of an ARM limiting the total increase in the interest rate over the life of the loan.

Loan Application Fee

A lender's fee, usually ranging from $75 to $400, which the buyer must pay when applying for a mortgage.

Loan Origination Fee

A fee paid to the lender to cover the administrative costs of the loan. May be a fixed dollar amount or a percentage of the loan, such as one percent.

Loan-to-Value Ratio (LTV)

The ratio between the amount of the mortgage and the total value of the property.

Lock-in Rate

An interest rate the lender guarantees to the borrower provided the mortgage is closed within a certain time period. The borrower may pay a fee for an extension of this period.

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The set percentage the lender adds to the index rate to determine the interest rate on an ARM (adjustable-rate mortgage).


A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Note

A legal document obligating a borrower to repay a loan at a stated interest rate during a specified time period; this is secured by a mortgage.


The borrower in a mortgage agreement.


The lender in a mortgage agreement. Also referred to as "Borrower".

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Negative Amortization

Payment terms under which the borrower's monthly payments are insufficient to cover interest due, thus increasing the loan balance.


See mortgage note.

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Offer to Purchase

A formal document in which a buyer proposes to buy a property for a specified amount and under certain conditions. Acceptance by the seller creates a contract binding on both parties, subject to any contingencies.

Owner Financing

A purchase in which the seller provides all or part of the financing for the buyer.

Owner's Title Policy

An insurance premium charged by the title company to insure the buyer that the title is free from defects up to the date the conveying instrument is recorded. Buyer is the beneficiary. Frequently paid by the seller.

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Payment Cap

A provision of some ARMs limiting how much the borrower's payments may increase, regardless of how much the interest rate increases. May result in negative amortization.

Perc Test

A test to determine if a property is suitable for a septic tank.


Stands for principal, interest, taxes and insurance - the components of a monthly mortgage payment.


A one-time charge by the lender to increase the yield of a loan. A point is equal to one percent of the loan amount and paid at closing.

Prepayment Penalty

A fee some lenders charge to a borrower who pays off a loan before its due date.

Prepaid Expenses

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepaid Interest

The amount of interest to cover the period from close of escrow until the beginning of the first payment.


The process of determining how large a loan a prospective homebuyer can qualify for: this procedure is done before actually applying for the loan.


The amount originally borrowed. Also that amount of the monthly mortgage payment that reduces the outstanding balance of a mortgage.

Private Mortgage Insurance (PMI)

Insurance provided by a nongovernment insurer to protect a lender against loss if a borrower defaults. Usually required if down payment is less than 20 percent.

Purchase and Sale Agreement

A legal document requiring the buyer to buy and the seller to sell, under specified terms and conditions.

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Qualifying Ratios

Comparisons of a borrower's debts and gross monthly income.

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Real Estate Agent

A person licensed to negotiate and transact the sale of real estate; usually works on behalf of the seller, unless designated as a buyer's broker.

Real Estate Settlement Procedures Act (RESPA)

A federal consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Property

Land and everything that is permanently affixed to it.

Recording Fees

Fees charged by the County Recorder's Office for recordation of Deed, Mortgage, or Deed of Trust, and, at times, additional documents requiring public notice.


The annulment of a contract as a result of which both parties are returned to their former positions. "Right of Rescission" is the right to the legal right to cancel the mortgage contract in such a way. Not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.


The process of obtaining a new mortgage, usually at a lower rate, to repay and replace an existing mortgage.

Right of First Refusal

An owner's promise to let someone make the first offer on a property, or to match the amount offered by another party.

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Second Mortgage

An additional mortgage behind the first mortgage on a property. The rights of the second mortgage holder are subordinate to the rights of the first mortgage holder.

Security Interest

Any interest in property acquired by contract for the purpose of securing payment or performance of an obligation.

Seller Take-back

An agreement in which a property owner provides financing to a buyer.


See closing.

Settlement Fee

Fee the title company charges to hold the closing in its office and to perform closing duties.


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. Also known as Loan Administration.


A drawing showing the legal boundaries of a property and the location of structures on it.

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Term of a Mortgage

The length of time you are given to repay a loan.

Termite Certificate/ Pest Inspection

A document certifying a property has no termites; may be required by lender.

Three/Two (3/2) Option ®

An alternative Fannie Mae financing plan that enables households with earnings at a certain percentage of the median income in their area to make a three percent down payment with their own funds, coupled with a two percent gift from a relative, or a two percent grant or unsecured loan from a nonprofit organization or government program.


A legal document establishing the right of ownership.

Title Examination

This fee is paid at closing. This policy protects the lender in case of future title problems arising. You will have the opportunity to purchase your own title insurance at a significant savings at the time of closing.

Title Insurance

Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over property ownership.

Title Search

A detailed examination of the title records to ensure that the seller of a property is the legal owner and that there are no liens or other claims outstanding.

Transfer Tax

State or local tax payable when title passes from one owner to another.


A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

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The process of evaluating a loan application to determine the lender's risk.

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VA loan

A loan guaranteed by the Veterans Administration, requiring low or no down payment.

VOD (Verification of Deposit)

A document signed by the borrower's financial institution verifying the status and balance of his/ her financial accounts.

VOE (Verification of Employment)

A document signed by the borrower's employer verifying his/ her position and salary.

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