Mortgage Glossary

A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.

A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination. See also: prepayment penalty.

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.

A limit to how much a variable interest rate can increase or decrease in a single adjustment period.

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

The period of time between adjustment dates for an adjustable-rate mortgage (ARM).

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs. See also: Prequalification

The gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.

The amount of time required to amortize (pay off) the loan, expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

A limit on how much the variable interest rate on a loan can increase or decrease each year.

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions.

Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit profile or a property appraisal.

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity line of credit.

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

A loan that may be transferred to someone else while maintaining the same terms. For example, if you have an assumable loan (not all loans are assumable) and you sell your home, you may be able to transfer that loan to the new owner with no change in the interest rate and repayment schedule, though you may need to pay a fee in order to do so.

A dated financial statement (in table form) that shows your assets, liabilities and net worth.

A loan that provides you with lower-than-usual monthly payments for a set period of time followed by a payment larger than usual at the end of your loan repayment period. While a balloon loan may lower your monthly payments it can also mean you make higher interest payments over the life of the loan.

An interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans and credit cards.

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1,000.

An interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust.

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration. In other words, if $3,600 is paid toward discount points to reduce the interest rate and the reduced rate would decrease the monthly mortgage payment by $100, it would take 3 years to break even on the choice to pay the discount point amount.

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a bridge loan might be taken out by a borrower and secured by that borrower’s present home so that the closing on a new house can take place before the present home is sold.

A third party who arranges funding or negotiates a contract between parties, but does not lend the money.

Fees charged by a real estate broker or a mortgage broker for providing assistance in a real estate transaction.

The lump-sum prepayment of all or a portion of your mortgage interest by a lender or homebuilder in order to lower your monthly mortgage payment, typically for a period of 1-3 years. See also: Term

Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee’s expense, to employees who leave the employer for any reason other than gross misconduct.

A provision in a loan that gives the lender the right to accelerate the debt and require full payment of the loan immediately at the end of a specified period or for specified reason.

A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan. See: Interest rate cap

Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower’s cash available for closing does not include cash reserves or money from those specified sources.

The amount a homebuyer needs in cash at the closing of the loan. This typically, this includes down payment and closing costs.

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement or any other purpose.

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) loan.

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

A statement provided by an abstract company, title company or attorney stating who holds title to real estate based on the public record.

The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Titles that are marketable and are free of liens or disputed legal questions as to ownership of the property.

The Close step is the date you will sign and execute your new loan documents.

Depending on the location of the property or type of transaction, the three business days right of rescission period may apply before your funds are available to you.

The three business days right of rescission period states that in certain real estate secured transactions that involve the refinance of a primary residence, the Truth in Lending Act allows applicants 3 business days to cancel the transaction and prohibits lenders from disbursing proceeds until after the rescission period has lapsed.

A status of closed indicates that no further action is required on this item.

The time and place, at which all documents for your loan are signed, dated, and notarized. See also: settlement

A closing document which provides key information such as interest rate, monthly payments, and costs to close the loan. Consumers are required to receive this form no later than 3 business days before they close on the loan.

Closing costs, also known as settlement costs, are the costs incurred when obtaining your loan. For new purchases, these costs also include ownership transfer of any collateral property from the seller to you. Costs may include and are not limited to: attorney's fees, preparation and title search fees, discount points, appraisal fees, title insurance, and credit report charges. They are typically about 3% of your loan amount, and are often paid at closing or just before your loan closes.

Funds often needed to close a loan, such as homeowners insurance, property taxes, and escrow impound account funds, aren't included in closing costs and are considered separate. You should be prepared to pay these costs before your loan closes.

The date you will sign your new loan documents.

An accounting of funds given to both buyer and seller before real estate is sold.

An additional person who assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan. This person also has equal rights to the proceeds of the loan.

A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

A combination loan pairs a conforming first mortgage with a home equity second mortgage for up to 80% of the property's value in a single application with 1 down payment. Combination loans may help you avoid the higher rates of a jumbo first mortgage. Combination loans are made up of 3 parts: 70% first mortgage, 10% home equity second mortgage and 20% down payment.

The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.

The ratio between the unpaid principal amount of your first mortgage, plus your credit limit if you have a home equity line of credit, and the appraised value of your home. Expressed as a percentage.

A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.

Properties similar to the property under consideration for a mortgage that have approximately the same size, location and amenities and have recently been sold. Comparables help an appraiser determine the fair market value of a property.

Interest paid on the principal balance and on the accrued and unpaid interest.

A mortgage loan that has the standard features as defined by (and is eligible for sale to) Fannie Mae and Freddie Mac.

A short-term interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.

A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

For a mortgage, the contractual payment is the required monthly payment amount for your home loan as described and determined by your loan contract. The contractual payment may include principal and interest due and may include a portion of funds due to cover homeowners insurance, mortgage insurance (if applicable), and property taxes associated with your home.

Here's how it works:

Principal + interest + mortgage insurance (if applicable) + homeowners insurance and tax (if applicable) = full contractual payment.

For a home equity line of credit, the contractual payment is the amount owed each month, which may fluctuate based on usage of the line and the terms of your loan agreement. At times, your Contractual Payment may consist of interest only or interest and principal payments.

A home loan that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate loan at specified times during the life of the loan.

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate loan under specified conditions.

To transfer or deliver title to property from one to another by deed or contract. When an item becomes a part of the transfer of title, it is conveyed with the property.

An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). It represents the weighted-average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See also: Adjustable-rate mortgage (ARM)

A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

The maximum amount you can borrow under a line of credit.

A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.

A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies. Learn how to read a credit report

The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.

A number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan. See how Bank of America credit card holders can obtain a free monthly score

A person or business from whom you borrow or to whom you owe money.

The likely ability of a borrower to repay debt.

Total interest accrued.

A payment that reduces the principal balance of a loan.

A single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.

Your total monthly debt payments (for example: loans, credit cards and court-ordered payments) divided by your gross monthly income before taxes and expressed as a percentage. Federal Housing Administration (FHA) guidelines in early 2017 recommend that your monthly mortgage payment should be no greater than 31% of your monthly income before taxes and your total monthly debt should be no greater than 43% of your monthly income before taxes.

A document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate tthat is being used to secure the loan.

The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.

Failure to make payments on time.

See: Points

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender and your credit history. How much of a down payment should you make?

The process of obtaining an advance against your available line of credit.

The period during which a borrower can obtain advances (also called draws) from an available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.

A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

A deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.

Any lien or liability attached to a property that affects or limits the title to that property, for example unpaid taxes, mortgages and leases.

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

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.

Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.