Mortgage Glossary

An escrow account is created at no cost to you to hold money to pay your homeowners insurance and property taxes on your behalf. We obtain information to determine the yearly insurance and tax amounts due on the property and include those amounts in your contractual payments to eliminate a large one-time expense to you. Escrow funds received as part of contractual payments are placed into an escrow account. When an insurance or property tax bill is received, escrow funds collected over time in the escrow account are used to pay these bills.

Escrow accounts can also be referred to as Impound Accounts.

An escrow analysis is performed periodically (generally once per year or more often due to specific events, such as a loan modification) and compares the amounts collected and paid into the escrow account with the actual charges paid out of the escrow account for taxes and insurance billed.

The analysis also projects what will be paid out of escrow over the next year and calculates the escrow payment amounts that will be needed to fund your escrow account for the upcoming year.

Typically refers to an account set up by a lender in which funds to pay for real estate taxes and homeowners insurance are deposited as part of the borrower's monthly mortgage payment, then disbursed as tax and insurance payments come due.

An escrow overage will occur when your escrow account balance exceeds the required minimum balance for the account. These escrow overages typically happen when there is a decrease in your property taxes or insurance premiums. When this happens, you may receive an escrow overage refund check or funds may be applied towards a future escrow balance.

An escrow shortage will occur when the balance in your escrow account drops below the required minimum balance. These escrow shortages typically happen when there is an increase in your property taxes or insurance premiums. When this happens, you may need to make up the shortage through an increase in your contractual payment or you may elect to make a separate payment into the escrow account.

When you pay more than your contractual payment, the additional amount that is paid, can either pay your next month's contractual payment or reduce the unpaid principal balance of your mortgage after satisfying any other amounts that are due (for example, outstanding fees, etc.). This may reduce the interest assessed in the future.

See the How do you apply my home loan payment? FAQ in the Making mortgage payments section on our FAQ page.

A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850. The higher the FICO score, the lower credit risk a consumer presents. Learn more about FICO scores

Law passed by Congress to give borrowers certain rights when dealing with consumer reporting agencies, or credit bureaus. All credit bureaus are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans. Learn more about the FCRA

The likely selling price of a home. The fair market value is usually determined by an appraisal.

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Fannie Mae website

An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages. Visit the FHA website

Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired, for example: build on it, sell it or lease it.

The cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points and certain other items. Some closing costs are not treated as finance charges.

A mortgage that is the senior lien against a property.

A home loan with a predetermined fixed interest rate for the entire term of the loan.

An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

A loan rate for which the lender has not "locked" or committed to lend at a particular interest rate. The floating interest rate and any discount points are not guaranteed. Your actual interest rate and discount points will be based on the market price available for your loan product at the time your interest rate is locked.

A determination by a reputable source about whether property is located within a special flood hazard zone.

Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.

A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue.

A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

The loss of money, property, rights or privileges due to a breach of legal obligation.

A legal tax form that reports the amount of interest and points paid during the previous year.

A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Freddie Mac website

The date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.

An itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within 3 business days of the application.

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae. Visit the Ginnie Mae website

A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA) or guaranteed by the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency responsible for the implementation and administration of housing and urban development programs. Among other things, HUD administers the Federal Housing Administration, enforces RESPA regulations and oversees Fannie Mae and Freddie Mac. Visit the HUD website

See: Homeowners insurance

A line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses. In most cases, you can withdraw funds up to your available credit limit for the first 10 years (your draw period) using convenience checks, debit cards or money transfer via Online Banking. Learn more about HELOCs

Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, homeowners insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim. Also called hazard insurance.

See: escrow impound account

The collection and placement of monies by a lender into an account in order to pay the borrower’s property taxes and insurance premiums when they become due.

Regular income from earnings, commissions, investments, rental payments or other sources.

Real estate developed or improved to produce income.

When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: Secured Overnight Financing Rate[(SOFR) and Treasury-Indexed ARMs (T-Bills)]

The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.

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

You have chosen our funds transfer option to reduce your interest rate. Please verify that the account information is correct. If you maintain at least this $25,000 balance for the first three consecutive billing cycles the account is open, you will receive .25% off your approved rate for the life of the line.

Initial advance of $25,000 or more<br>The initial advance of $25,000 or more discount applies for drawing an initial advance of $25,000 or more, and maintaining at least that minimum balance for the first 3 full consecutive billing cycles.

The proceeds of the home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.

The starting interest rate. Some people call this the “teaser rate,” because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn’t go up, since it’s lower than index plus margin for the initial period).

A request for your credit report, made by you or a company considering you for an offer of credit.

A loan that is repaid in equal payments, known as installments.

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

A mortgage that is protected by an insurer in case of default. The insurance protects the lender (not the borrower) if a borrower defaults on the loan.

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

The annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for the loan. See also: Annual percentage rate (APR)

See: Buydown

A limit on how much the variable interest rate can increase at any one time. Many home loans have both annual (or semiannual) caps and lifetime caps, which limit the amount your payments can increase in an adjustment period and over the life of the loan. Many caps allow a rate increase of 2-5% over the starting interest rate in an adjustment period (for example, a starting rate of 5% could increase to 7% or, depending on the loan guidelines, to as much as 10%). A lender’s lifetime interest rate cap is typically 6% over the life of the loan.

A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan. Making interest-only payments will result in larger payments being due at the end of the interest-only payment period. See also: Balloon loan

Property that is purchased to generate rental income, or to be sold once it has appreciated in value.

A decree by a court of law that one person is indebted to another for a specified amount. In some states, the court may place a lien against the debtor’s real property as collateral for payment of the judgment to the creditor.

Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts. Learn more about jumbo loans

A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

See: Homeowners insurance

The legal claim of a creditor on a borrower’s property, to be used as security for a debt.

An individual or entity that has placed a lien on real property.

A limit on how much the variable interest rate can increase during the term of a loan.

An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home. Learn more about a home equity line of credit

Disclosure to help consumers understand the key loan terms and estimated costs of a mortgage before they make a complete application. After a consumer submits 6 key elements: name, income, social security number, property address, estimated property value and desired loan amount, the lender is required to provide this form. All lenders are required to use the same standard loan estimate form to make it easier for consumers to compare and shop for a mortgage.

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.

Changes to one or more of the terms of a loan.

The process by which a mortgage lender makes a home loan and records a mortgage against the borrower’s real property as security for repayment of the loan.

See: Term

The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage. For example, if you have an $80,000 first mortgage on a property with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

The amount of time prior to closing that you can secure an interest rate for your loan. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more you pay in points or interest.

A structure that has been partially or entirely constructed at another location and moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.

The number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate adjustments. The margin is constant throughout the life of the mortgage and is specified in the promissory note.

The day on which the outstanding principal, interest and fees on a loan must all be repaid.

Miscellaneous payments can be submitted within Online Banking and Mobile. Any Miscellaneous Payment made will be applied to the account in accordance with the terms and conditions of your loan which may include application to fees, principal, and/or other categories, such as unapplied funds if less than the current contractual payment due.

See the How do you apply my home loan payment? FAQ in the Making mortgage payments section on our FAQ page.

A type of residence that’s built upon a wheeled chassis and can be transported from site to site.

A factory-built home that’s erected on-site, with the appearance and characteristics of a site-built residence.

A legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.

For conventional loans, insurance that protects the lender if you default on your loan. If your down payment is less than 20%, most lenders will require you to pay mortgage insurance. Also called private mortgage insurance (PMI).

See: Points

Generally, there are three basic mortgage programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and conventional mortgage loans. VA loans are only offered to qualifying veterans and surviving spouses, while FHA loans are available to all qualifying borrowers. Both VA and FHA loans are guaranteed/insured by the federal government. This insurance protects the lender (not the borrower) should the borrower default and the lender sustains a loss. Conventional loans are available to all qualifying borrowers and are not insured or guaranteed by the federal government.

A residential property with 2 to 4 individual housing units (duplex, triplex or quadplex).

The result when monthly payments don’t cover all the interest due on the loan. The unpaid interest is added to the unpaid balance, which means the homebuyer will owe increasingly more than the original amount of the loan.

The sum of the existing credit line and the amount of additional credit requested.

A loan in which the borrower is not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

See: Jumbo loan

Properties in which the owner does not live.

A written agreement in which the signer promises to pay to a named person or company a specific sum of money at a specified date or on demand.

The interest rate stated in a mortgage note.

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

A type of adjustable-rate mortgage (ARM) that offers the borrower a choice of 4 monthly payment options to help provide financial flexibility to manage payments in rising rate markets and take advantage of falling interest rates.

The date that the proceeds of a loan are disbursed.

The date on which a loan is funded or disbursed.

A fee imposed by a lender to cover certain processing expenses in connection with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is stated in the form of points. See also: Points

A property purchase transaction in which the property seller provides all or part of the financing.

A property that the owner occupies as a principal residence.

An acronym for principal, interest, taxes and insurance. Also referred to as the monthly housing expense.

A limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don’t limit the amount of interest charged and may cause negative amortization. See also: Interest rate cap

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date. The borrower is notified 30 days before the new rate and payment take effect.

Payment of the outstanding balance of a loan in full. Also, the amount required to pay the outstanding balance in full.

The amount of interest that accrues daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing the result by 365.

An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage would cost $2,000. Negative points indicate the amount to be credited at closing to reduce closing costs. Also called discount points or mortgage points.