Mortgage Glossary

A lender’s conditional agreement to lend a specific amount of money to a homebuyer under a specified set of terms.

A formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (such as a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.

See: Short sale

The expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).

Interest collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.

An amount paid to reduce the principal balance of a loan before the principal is due.

A penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance, and is usually limited to the early years of a mortgage. See also: Account termination fee

The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.

The interest rate that banks charge their best customers when lending them money. The U.S. Prime Rate, as published daily by The Wall Street Journal, is based on a survey of the prime rates of the 10 largest banks in the United States. The U.S. Prime Rate is used by some financial institutions to calculate variable interest rates for credit cards. Changes in the U.S. Prime Rate influence changes in other rates, including mortgage interest rates.

The principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest account for the majority of your mortgage payment, which may also include escrow payments for property taxes, homeowners insurance, mortgage insurance and any other costs that are paid monthly, or fees that may come due.

The unpaid portion of the loan amount. The principal balance does not include interest or any other charges.

Portion of your monthly payment that reduces the principal balance of a home loan. This term also refers to prepayments you make to the principal balance.

See: Mortgage insurance

A fee charged to cover the administrative costs of processing a loan request.

A written promise to repay a specified amount over a specified period of time.

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Calculations that are used to determine whether a borrower can qualify for a mortgage. They consist of 2 separate calculations: a housing expense as a percent of income and total debt obligations as a percent of income.

The amount of interest on a loan, expressed as a percentage.

See: Interest rate cap

A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. When a rate lock expires, you will need to contact your lending specialist to establish a new rate lock prior to closing your loan.

A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. When a rate lock expires, you will need to contact your lending specialist to establish a new rate lock prior to closing your loan.

A provision in a fixed-rate mortgage that gives the borrower the option to reduce the interest rate at a later date without having to refinance. Exercising a rate reduction option typically does not require requalifying for the loan.

A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts and requires notice to borrowers when servicing of a home loan is transferred.

To take the remaining balance of a mortgage loan and establish a new period of amortization after which the principal balance will be zero. Typically used after the end of the term of an interest-only loan.

A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

A method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however no verification documentation is typically required.

Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates or save on financing costs.

A first mortgage that enables borrowers to purchase or refinance and rehabilitate homes. With this mortgage product, borrowers can qualify for loan amounts based on the as-completed value of the property, up to the maximum loan limits.

The time you have to fully repay your outstanding balance, according to your payment terms. In a home equity line of credit, for example, the repayment period (typically 20 years) is the loan term that follows the draw period (typically 10 years).

The cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have 3 business days to cancel the transaction.

The amount of savings, separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies. During the loan approval process, many lenders require reserves (typically the equivalent of 2 monthly mortgage payments) to be verified.

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

A loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury. See also: Government loan

A loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury. See also: Government loan

Secured Overnight Financing Rate; SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

A property occupied part-time by a person in addition to his or her primary residence.

Loans for which the borrower gives the lender a lien on property such as an automobile, boat, other personal property or real estate that will serve as collateral for the loan.

The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

The completion of a property’s sale or purchase, or the completion of all steps necessary to receive the proceeds of (and create an obligation to repay) a loan. See also: Closing

A person or entity that conducts the settlement to transfer title of the property and to close on the mortgage loan. May be an attorney, a title insurer, a title agent or an escrow agent.

See: Closing costs

A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.

A detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof, but can be part of a planned unit development (PUD).

The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. Also known as an initial rate or intro rate. It provides lower interest and lower monthly payments at the beginning but may adjust at the next adjustment period.

Any mortgage or other lien that has a priority lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid.

See: Bridge loan

The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title and flood certifications.

Written evidence of ownership in property.

The agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear.

Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.

An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.

See: Debt-to-income ratio

The fee that may be charged each time you draw on your credit line.

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See also: Prime rate

A fiduciary that holds or controls property for the benefit of another.

A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions. Read about the Truth in Lending Act on the Dept. of the Treasury website

When your entire payment or a portion of your payment received by Bank of America may be placed into a Suspense account.

See the How does a suspense account work? FAQ in the Making mortgage payments section on our FAQ page.

The person who approves or denies a home loan, based on the lender’s underwriting and approval criteria.

The lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets and other factors, and the matching of this risk to an appropriate rate, term and loan amount.

The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.

When we use the term Unpaid Principal Balance, we mean the amount you borrowed (which may include amounts that have been added to your principal balance in connection with loan modifications) over the history of the loan that has not yet been paid back. We may charge you interest each month on the Unpaid Principal Balance (or amount owed), according to the terms of your loan.

Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.

Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.

The costs you must pay when applying for a loan. Typically these include loan application fees. Some lenders require some of your closing costs also be paid when you apply.

A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces. See also: Government loan

A vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.

An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.

The minimum amount you will need to pay each month on your home equity line of credit, or HELOC (does not include any payments for the Fixed- Rate Loan Payment Option). The payment amount includes both principal and interest (minimum of $100). The monthly required payment may vary each month and is based on your outstanding loan balance and fluctuating interest rate. In general, this payment is intended to repay your loan balance in substantially equal principal and interest installments over the remaining loan term, based on the balance and rate information at the time of each monthly calculation.

A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.

A final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.

An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

Where is this found?<br>Your application number is listed in your Welcome Letter or other bank communications regarding this application. If you haven’t received your Welcome Letter or need help with your application number, please call 1.800.269.3084.

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This coverage is typically required in coastal areas and pays for property damage resulting from a windstorm. Like flood and earthquake coverage, windstorm insurance covers damage to the dwelling and, in some cases, personal property and living expenses if the dwelling is uninhabitable. Some states offer market assistance programs or joint underwriting associations to help homeowners find coverage in areas where coverage is scarce.

A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.

The report shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account for you, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.