Mortgage Dictionary
Is your bank or broker confusing you with big words? Do you want to sound savvier when dealing with your mortgage transaction?
This mortgage glossary is a good place to hone up on your mortgage vocabulary to make sense of what can be a very confusing process.
The more you know about mortgage terminology, the more fear you’ll instill in your bank or broker. Outsmart them and they’ll think twice before overcharging you.
Check out the “mortgage dictionary” below. Be sure to click on the hyper-linked terms to get a more detailed definition where applicable:
1031 Exchange - click link for detailed definition
Adjustable-Rate Mortgage (ARM) - a mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Option-arms and hybrid mortgages are also considered adjustable-rate mortgages.
Amortization - the way a loan is paid off over time in installments, detailing how much goes towards interest, and how much is paid towards principal.
Annual Percentage Rate (APR) - the actual interest rate you pay on your mortgage, which factors in fees, points, and other costs associated with the loan.
Annual Percentage Yield (APY) - click link for detailed definition
Appraisal - a comprehensive report that determines the value of your property based on a number of valuation factors.
Assumption - the act of assuming responsibility for the payment of a mortgage lien.
Balloon Mortgage - a short-term mortgage with small monthly installments and a large lump sum due at the end of the loan term. An example would be a 30 due in 15, which amortizes like a 30 year fixed, but is due 15 years earlier.
Biweekly Mortgage - click link for detailed definition
Bridge Loan - click link for detailed definition
Broker - an individual who assists a borrower in acquiring funding for a mortgage, but does not lend the money themselves.
Buy-Down - the act of securing a lower than par interest rate by paying the bank a lender a premium.
Caps - initial, periodic, and lifetime payment caps which limit how much and how frequently an interest rate can change on an adjustable-rate mortgage.
Certificate of Reasonable Value (CRV) - an appraisal issued by the Veterans Administration to determine the value of a property. The loan amount may not exceed the CRV on a VA loan.
Closing - the final step in the loan process when loan documents are signed at an escrow or title company.
Conforming Loan - a loan that meets Fannie Mae and Freddie Mac guidelines, which also falls under a certain loan amount.
Construction Loan - a short-term loan given to a builder during intervals of the building process which is due upon completion of the project.
Credit Report - a tool used by the bank or lender to review your credit profile and your ability to carry and repay debt.
Debt-to-Income Ratio - the ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.
Deed of Trust - a security instrument between the borrower and the lender, recorded in public records as a lien on the subject property. It differs from a mortgage in that the bank can foreclose on the property without judicial proceedings.
Deferred Interest - the amount of interest added to the principal loan balance when a borrower pays less than the interest-only note rate.
Delinquency - the failure to make a monthly mortgage payment on time, which can eventually lead to a notice of default, and later a foreclosure.
Discount Rate - click link for detailed definition
Down Payment - an upfront payment to the seller of a property for a portion of the sales price, usually between 5 to 25%. The remainder of the sales prices makes up the mortgage amount.
Earnest Money - a deposit paid to the seller by the buyer as a pledge to complete a real estate transaction. If the seller accepts the offer, the deposit is held in escrow and applied to closing costs when the deal is closed.
Equal Credit Opportunity Act - a federal law that prevents lenders from discriminating applicants based on race, religion, national origin, sex, age, marital status or involvement in public assistance programs
Equity - the value of a property less any and all existing liens. If a borrower owns a property worth $500,000 and has liens of $400,000, equity is $100,000.
Escrow - a third party intermediary who holds and allocates funds, including taxes and insurance in a mortgage transaction.
Federal Funds Rate - click link for detailed definition
Federal Home Loan Mortgage Corporation - one of the largest financiers of conventional mortgages on the secondary market. Widely known as Freddie Mac.
Federal National Mortgage Corporation - a publicly owned, government-sponsored corporation that packages mortgages and resells them on the secondary market. Also known as Fannie Mae.
FHA Loan - a program originated during The Great Depression that allows lower income borrowers to qualify for mortgages as long as they fit certain criteria set forth by the Federal Housing Administration who insures them.
Fixed-Rate Mortgage - a mortgage with a constant interest rate that will not adjust at any point during the life of the loan.
Foreclosure - the legal process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan.
Graduated Payment Mortgage - a negative amortization mortgage with flexible payment options that gradually increase over time until leveling off. Intended for young couples who are unable to make the full mortgage payment, but whose income will increase over time.
Hard Money Loan - click link for detailed definition
Hazard Insurance - insurance which protects a property owner from damages caused by fire or severe weather.
Home Equity Line of Credit - click link for detailed definition
Impound Account - an account established by the issuing bank or lender to automatically pay a borrower’s property tax and insurance costs when payments are due.
Interest Only - paying just the interest portion of the mortgage payment each month.
Islamic Mortgage - click link for detailed definition
Jumbo Loan - a loan amount above the conforming loan limits, which is set each year by Fannie Mae and Freddie Mac. These loans typically carry higher interest rates than conforming loans because they can’t be sold to Fannie or Freddie.
Lien - a claim against a property by the issuing bank or lender to secure repayment of a debt, typically in the form or a mortgage.
Loan Officer - click link for detailed definition
Loan Origination - click link for detailed definition
Loan-to-Value - the percentage of the appraised property value that is borrowed from a bank or lender. A down payment of 20% would create a loan-to-value of 80%.
Margin - a given amount specified by the bank or lender which when added to the accompanying mortgage index sets the interest rate for an adjustable-rate mortgage.
Mortgage - a temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.
Mortgage Broker - click link for detailed definition
Mortgage Insurance - required insurance on a mortgage if the down payment is less than twenty percent and a single loan is used to finance the property.
Mortgagee - the issuing bank or lender.
Mortgagor - the borrower or homeowner.
Negative Amortization - when a mortgage payment received is below the interest-only payment, the difference will be added onto the principal balance of the loan.
Ninja Loan - no income, no job, no asset loan. A “Ninja loan” is slang for a no doc loan, which doesn’t require income, asset, or job verification.
Note - a written promise to repay the mortgage plus interest, which includes the name of the borrower, issuing lender, and the terms and provisions.
Origination Fee - a percentage of the loan amount charged by the bank or broker for completing the loan process.
Par Rate - click link for detailed definition
Payment Shock - a sudden, large increase in the monthly mortgage payment as a result of an adjustable-rate mortgage or through a refinance with new financing terms.
Piggyback Mortgage - a second mortgage that closes simultaneously with the first mortgage to reduce the total necessary down payment.
PITI - the monthly housing expense, expressed as principal, interest, taxes, and insurance.
Points - stands for a percentage point of the loan amount, typically makes up the origination fee, which can be a fraction of a point to multiple points.
Prepayment Penalty - if a loan is refinanced or repaid prior to a certain date as agreed upon in the loan documents, a fee will be charged by the bank or lender.
Prime Rate - click link for detailed definition
Principal - the balance on the liens on a property, not including interest.
Quitclaim Deed - a document by which a person either disclaims interest in a property or transfers interest to another person, typically a spouse.
Real Estate Short Sales - click link for detailed definition
Refinance - the act of replacing your existing loan(s) with a new loan on the same property. There are two main types of refinances, rate and term refinance and cash-out refinance.
Reverse Mortgage - click link for detailed definition
Right of Rescission - a law which allows a homeowner to rescind a contract to refinance their primary residence within three days of signing loan documents .
Second Mortgage - click link for detailed definition
Seller Carryback - click link for detailed definition
VA Mortgage - click link for detailed definition
Yield Spread Premium - click link for detailed definition
