Mortgage Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

7/23 and 5/25 Mortgages

Mortgages with a one time rate adjustment after seven years and five years respectively.

TOP

3/1, 5/1, 7/1 and 10/1 ARMs

Adjustable rate mortgages in which rate is fixed for three year, five year, seven year and 10-year periods, respectively, but may adjust annually after that.
TOP

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due on Sale Clause.
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Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage, variable rate mortgage or Canadian rollover mortgage.

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Adjusted Basis

The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

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Adjustment Date

The date that the interest
rate changes on an adjustable rate mortgage (ARM).TOP

Adjustment Interval

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

Adjustment Period

The period elapsing between
adjustment dates for an adjustable rate mortgage (ARM).TOP

Affordability Analysis

An analysis of a buyer’s
ability to afford the purchase of a home. Reviews income, liabilities,
and available funds, and considers the type of mortgage you plan to
use, the area where you want to purchase a home, and the closing costs
that are likely.TOP

Amortization

Loan payment divided into
equal periodic payments calculated to pay off the debt at the end of
a fixed period, including accrued interest on the outstanding balance.
TOP 

Amortization Term

The length of time required
to amortize the mortgage loan expressed as a number of months. For example,
360 months is the amortization term for a 30-year fixed rate mortgage.TOP

Annual Percentage
Rate (APR)

The measurement of the full
cost of a loan including interest and loan fees expressed as a yearly
percentage rate. Because all lenders apply the same rules in calculating
the annual percentage rate, it provides consumers with a good basis
for comparing the cost of different loans.TOP

Appraisal

An estimate of the value
of property made by a qualified professional called an “appraiser.”TOP 

Appraised Value

An opinion of a property’s
fair market value, based on an appraiser’s knowledge, experience, and
analysis of the property.TOP

Assessment

A local tax levied against
a property for a specific purpose, such as a sewer or street lights.
TOP 

Assignment

The transfer of a mortgage
from one person to another.TOP

Assumability

An assumable mortgage can
be transferred from the seller to the new buyer. Generally requires
a credit review of the new borrower and lenders may charge a fee for
the assumption. If a mortgage contains a due on sale clause, it may
not be assumed by a new buyer.TOP

Assumption

The agreement between buyer
and seller where the buyer takes over the payments on an existing mortgage
from the seller. Assuming a loan can usually save the buyer money since
this is an existing mortgage debt, unlike a new mortgage where closing
cost and new, probably higher, market rate interest charges will apply.TOP 

Assumption Fee

The fee paid to a lender
(usually by the purchaser of real property) when an assumption takes
place.TOP

Balloon Mortgage

A loan which is amortized
for a longer period than the term of the loan. Usually this refers to
a thirty year amortization and a five or seven year term. At the end
of the term of the loan, the remaining outstanding principal on the
loan is due. This final payment is known as a balloon payment.
TOP 

Balloon Payment

The final lump sum paid
at the maturity date of a balloon mortgage.TOP

Biweekly Payment
Mortgage

A plan to reduce the debt
every two weeks (instead of the standard monthly payment schedule).
The 26 (or possibly 27) biweekly payments are each equal to one half
of the monthly payment required if the loan were a standard 30-year
fixed rate mortgage. The result for the borrower is a substantial savings
in interest.TOP

Blanket Mortgage

A mortgage covering at least
two pieces of real estate as security for the same mortgage.TOP 

Borrower
(Mortgagor)

One who applies for and
receives a loan in the form of a mortgage with the intention of repaying
the loan in full.TOP

Bridge Loan

A second trust that is collateralized
by the borrower’s present home allowing the proceeds to be used to close
on a new house before the present home is sold. Also known as “swing
loan.”
TOP 

Broker

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.TOP

Buy Down

When the lender and/or the
home builder subsidized the mortgage by lowering the interest rate during
the first few years of the loan. While the payments are initially low,
they will increase when the subsidy expires.TOP

Cash Flow

The amount of cash derived
over a certain period of time from an income producing property. The
cash flow should be large enough to pay the expenses of the income producing
property (mortgage payment, maintenance, utilities, etc…).TOP 

Caps (interest)

Consumer safeguards which
limit the amount of change to the interest rate for an adjustable rate
mortgage.TOP

Caps (payment)

Consumer safeguards which
limit the amount of change to the monthly payments for an adjustable
rate mortgage.
TOP 

Certificate of Eligibility

The document given to qualified
veterans which entitles them to VA guaranteed loans for homes, business
and mobile homes. Certificates of eligibility may be obtained by sending
form DADA (Separation Paper) to the local VA office with VA form 1880
(Request for Certificate of Eligibility).TOP

Certificate of Reasonable
Value (CRV)

An appraisal issued by the
Veterans Administration showing the property’s current market value.TOP

Certificate of Veteran
Status

The document given to veterans
or reservists who have served 90 days of continuous active duty (including
training time). It may be obtained by sending DD 214 to the local VA
office with form 26-8261a (Request for Certificate of Veteran Status).
This document enables veterans to obtain lower down payments on certain
FHA insured loans.
TOP 

Change Frequency

The frequency (in months)
of payment and/or interest rate changes in an adjustable rate mortgage
(ARM).TOP

Closing

The meeting between the
buyer, seller and lender or their agents where the property and funds
legally change hands, also called settlement. Closing costs usually
include an origination fee, discount points, appraisal fee, title search
and insurance, survey, taxes, deed recording fee, credit report charge
and other costs assessed at settlement. The cost of closing usually
are about 3 percent to 6 percent of the mortgage amount.TOP

Closing Costs

Expenses over and above
the price of the property that are incurred by buyers and sellers when
transferring ownership of a property. Closing costs normally include
an origination fee, property taxes, charges for title insurance and
escrow costs, appraisal fees, etc. Closing costs will vary according
to the area country and the lenders used.TOP 

COFI

An adjustable-rate mortgage
with a rate that adjusts based on a cost-of-funds index, often the 11th
District Cost of Funds.TOP

Construction Loan

A short term interim loan
to pay for the construction of buildings or homes. These are usually
designed to provide periodic disbursements to the builder as he or she
progresses.
TOP 

Consumer Reporting
Agency (or Bureau)

An organization that handles
the preparation of reports used by lenders to determine a potential
borrower’s credit history. The agency gets data for these reports from
a credit repository and other sources.TOP

Contract Sale or
Deed:

A contract between purchaser
and a seller of real estate to convey title after certain conditions
have been met. It is a form of installment sale.TOP

Conventional Loan

A mortgage not insured by
FHA or guaranteed by VA.TOP 

Conversion Clause

A provision in an ARM allowing
the loan to be converted to a fixed-rate at some point during the term.
Usually conversion is allowed at the end of the first adjustment period.
The conversion feature may cost extra.TOP

Credit Report

A report documenting the
credit history and current status of a borrower’s credit standing.
TOP 

Credit Risk Score

A credit risk score is a
statistical summary of the information contained in a consumer’s credit
report. The most well known type of credit risk score is the Fair Isaac
or FICO score. This form of credit scoring is a mathematical summary
calculation that assigns numerical values to various pieces of information
in the credit report. The overall credit risk score is highly relative
in the credit underwriting process for a mortgage loan.TOP

Debt-to-Income Ratio

The ratio, expressed as
a percentage, which results when a borrower’s monthly payment obligation
on long term debts is divided by his or her gross monthly income. See
housing expenses-to-income ratio.TOP

Deed of Trust

In many states, this document
is used in place of a mortgage to secure the payment of a note.TOP 

Default

Failure to meet legal obligations
in a contract, specifically, failure to make the monthly payments on
a mortgage.TOP

Deferred Interest

When a mortgage is written
with a monthly payment that is less than required to satisfy the note
rate, the unpaid interest is deferred by adding it to the loan balance.
See negative amortization.
TOP 

Delinquency

Failure to make payments
on time. This can lead to foreclosure.TOP

Department of Veterans
Affairs (VA)

An independent agency of
the federal government which guarantees long term, low-or-no-down payment
mortgages to eligible veterans.TOP

Discount Point

See pointTOP 

Down Payment

Money paid to make up the
difference between the purchase price and the mortgage amount.TOP

Due-on-Sale-Clause

A provision in a mortgage
or deed of trust that allows the lender to demand immediate payment
of the balance of the mortgage if the mortgage holder sells the home.TOP 

Earnest Money

Money given by a buyer to
a seller as part of the purchase price to bind a transaction or assure
payment.
TOP 

Entitlement

The VA home loan benefit
is called an entitlement (i.e. entitlement for a VA guaranteed home
loan). This is also known as eligibility.TOP

Equal Credit Opportunity
Act (ECOA)

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

Equity

The difference between the
fair market value and current indebtedness, also referred to as the
owner’s interest. The value an owner has in real estate over and above
the obligation against the property.
TOP 

Escrow

An account held by the lender
into which the home buyer pays money for tax or insurance payments.
Also earnest deposits held pending loan closing.TOP

Escrow Disbursements

The use of escrow funds
to pay real estate taxes, hazard insurance, mortgage insurance, and
other property expenses as they become due.TOP

Escrow Payment

The part of a mortgagor’s
monthly payment that is held by the servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as they
become due.

Fannie Mae

See Federal National
Mortgage Association.TOP

Farmers Home Administration
(FmHA)

Provides financing to farmers
and other qualified borrowers who are unable to obtain loans elsewhere.
TOP 

Federal Home Loan
Bank Board (FHLBB)

The former name for the
regulatory and supervisory agency for federally chartered savings institutions.
The agency is now called the Office of Thrift SupervisionTOP 

Federal Home Loan
Mortgage Corporation(FHLMC) also called “Freddie Mac”

A government sponsored entity
that purchases conventional mortgage from insured depository institutions
and HUD-approved mortgage bankers.TOP

Federal Housing
Administration (FHA)

A division of the Department
of Housing and Urban Development. Its main activity is the insuring
of residential mortgage loans made by private lenders. FHA also sets
standards for underwriting mortgages.
TOP 

Federal National
Mortgage Association (FNMA) also know as “Fannie Mae”

A government sponsored entity
that purchases and sells conventional residential mortgages as well
as those insured by FHA or guaranteed by VA.TOP

FHA Loan

A loan insured by the Federal
Housing Administration open to all qualified home purchasers. While
there are limits to the size of FHA loans, they are generous enough
to handle moderately priced homes almost anywhere in the country.TOP

FHA Mortgage Insurance

Requires a fee (up to 2.25
percent of the loan amount) paid at closing to insure the loan with
FHA. In addition, FHA mortgage insurance requires an annual fee of up
to 0.5 percent of the current loan amount, paid in monthly installments.
The lower the down payment, the more years the fee must be paid.TOP 

FHLMC

The Federal Home Loan Mortgage
Corporation provides a secondary market for savings and loans by purchasing
their conventional loans. Also known as “Freddie Mac.”TOP

Firm Commitment

A promise by FHA to insure
a mortgage loan for a specified property and borrower. A promise from
a lender to make a mortgage loan.
TOP 

First Mortgage

The primary lien against
a property.”>TOP

Fixed Installment

The monthly payment due
on a mortgage loan including payment of both principal and interest.TOP

Fixed Rate Mortgage

The mortgage interest rate
will remain the same on these mortgages throughout the term of the mortgage
for the original borrower.TOP 

Fully Amortized
ARM

An adjustable rate mortgage
(ARM) with a monthly payment that is sufficient to amortize the remaining
balance, at the interest accrual rate, over the amortization term.TOP

FNMA

The Federal National Mortgage
Association is a secondary mortgage institution. FNMA buys VA, FHA,
and conventional mortgages from primary lenders. Also known as “Fannie
Mae.”
TOP 

Foreclosure

A legal process by which
the lender or the seller forces a sale of a mortgaged property because
the borrower has not met the terms of the mortgage. Also known as a
repossession of property.TOP

Freddie Mac

See Federal Home Loan
Mortgage Corporation TOP 

Ginnie Mae

See Government National
Mortgage Association.
TOP 

Government National
Mortgage Association (GNMA)

Also known as “Ginnie Mae.”
Provides sources of funds for residential mortgages, insured or guaranteed
by FHA or VA.TOP

Graduated Payment
Mortgage (GPM)

A type of flexible payment
mortgage where the payments increase for a specified period of time
and then level off. This type of mortgage has negative amortization
built into it.TOP

Growing Equity Mortgage
(GEM)

A fixed rate mortgage that
provides scheduled payment increases over an established period of time.
The increased amount of the monthly payment is applied directly toward
reducing the remaining balance of the mortgage.
TOP 

Guaranty

A promise by one party to
pay a debt or perform an obligation contracted by another if the original
party fails to pay or perform according to a contract.TOP

Guarantee Mortgage

A mortgage that is guaranteed
by a third party.TOP 

Hazard Insurance

A form of insurance in which
the insurance company protects the insured from specified losses, such
as fire, windstorm and the like.
TOP 

Housing Expenses-to-Income
Ratio

The ratio, expressed as
a percentage, which results when a borrower’s housing expenses are divided
by his/her gross monthly income. See debt-to-income ratio.TOP 

HUD-1 Statement

A document that provides
an itemized listing of the funds that are payable at closing. Items
that appear on the statement include real estate commissions, loan fees,
points and initial escrow amounts. Each item on the statement is represented
by a separate number within a standardized numbering system. The totals
at the bottom of the HUD-1 statement define the seller’s net proceeds
and the buyer’s net payment at closing.TOP 

Impound

The portion of a borrower’s
monthly payments held by the lender or servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as they
become due. Also known as reserves.
TOP 

Index

A published interest rate
against which lenders measure the difference between the current interest
rate on an adjustable rate mortgage and that earned by other investments
(such as one, three, and five year U.S. Treasury security yields, the
monthly average interest rate on loans closed by savings and loan institutions,
and the monthly average costs-of-funds incurred by savings and loans),
which is then used to adjust the interest rate on an adjustable mortgage
up or down.TOP

Indexed Rate

The sum of the published
index plus the margin. For example if the index is 4% and the margin
is 2.75%, the indexed rate would be 6.75%. Often, lenders charge less
than the indexed rate the first year of an adjustable rate mortgage.TOP

Initial Interest
Rate

This refers to the original
interest rate of the mortgage at the time of closing. This rate changes
for an adjustable rate mortgage (ARM). It’s also known as “start rate”
or “teaser.”TOP 

Installment

The regular periodic payment
that a borrower agrees to make to a lender.TOP

Insured Mortgage

A mortgage that is protected
by the Federal Housing Administration (FHA) or by private mortgage insurance
(MI).
TOP 

Interest

The fee charged for borrowing
money.TOP

Interest Accrual
Rate

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

Interest Rate Buydown
Plan

An arrangement that allows
the property seller to deposit money to an account. That money is then
released each month to reduce the mortgagor’s monthly payments during
the early years of a mortgage.TOP 

Interest Rate Ceiling

For an adjustable rate mortgage
(ARM), the maximum interest rate, as specified in the mortgage note.TOP

Interest Rate Floor

For an adjustable rate mortgage
(ARM), the minimum interest rate, as specified in the mortgage note.
TOP 

Interim Financing

A construction loan made
during completion of a building or a project. A permanent loan usually
replaces this loan after completion.TOP

Investor

A money source for a lender.TOP 

Jumbo Loan

A loan which is larger than
the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Because jumbo
loans cannot be funded by these two agencies, they usually carry a higher
interest rate.
TOP 

Late Charge

The penalty a borrower must
pay when a payment is made a stated number of days after the due date.TOP

Lease-Purchase Mortgage
Loan

An alternative financing
option that allows low and moderate income home buyers to lease a home
with an option to buy. Each month’s rent payment consists of principal,
interest, taxes and insurance (PITI) payments on the first mortgage
plus an extra amount that accumulates in a savings account for a down
payment.TOP

Liabilities

A person’s financial obligations.
Liabilities include long term and short term debt.TOP 

Lien

A claim upon a piece of
property for the payment or satisfaction of a debt or obligation.TOP

Lifetime Payment
Cap

For an adjustable rate mortgage
(ARM), a limit on the amount that payments can increase or decrease
over the life of the mortgage.
TOP 

Lifetime Rate Cap

For an adjustable rate mortgage
(ARM), a limit on the amount that the interest rate can increase or
decrease over the life of the loan. See cap.TOP

Loan

A sum of borrowed money
(principal) that is generally repaid with interest.TOP

Loan to Value Ratio

The relationship between
the amount of the mortgage loan and the appraised value of the property
expressed as a percentage.TOP 

Lock

A lender’s guarantee that
the mortgage rate quoted will be good for a specific number of days
from the day of application.TOP 

Margin

The amount a lender adds
to the index on an adjustable rate mortgage to establish the adjusted
interest rate.
TOP 

Market Value

The highest price that a
buyer would pay and the lowest price a seller would accept on a property.
Market value may be different from the price a property could actually
be sold for at a given time.TOP

Maturity

The date on which the principal
balance of a loan becomes due and payable.TOP

MIP (Mortgage Insurance
Premium)

Insurance from FHA to the
lender against incurring a loss on account of the borrower’s default.TOP 

Monthly Fixed Installment

The portion of the total
monthly payment that is applied toward principal and interest. When
a mortgage negatively amortizes, the monthly fixed installment does
not include any amount for principal reduction and doesn’t cover all
of the interest. The loan balance therefore increases instead of decreasing.TOP

Mortgage

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

Mortgage Banker

A company that originates
mortgages for resale in the secondary mortgage market.TOP

Mortgage Broker

An individual or company
that charges a service fee to bring borrowers and lenders together for
the purpose of loan origination.TOP

Mortgagee

The lender.TOP 

Mortgage Insurance

Money paid to insure the
mortgage when the down payment is less than 20 percent. See private
mortgage insurance, FHA mortgage insurance.TOP

Mortgage Life Insurance

A type of term life insurance.
In the event that the borrower dies while the policy is in force, the
mortgage debt is automatically paid by insurance proceeds.
TOP 

Mortgagor

The borrower or homeowner.TOPMortgage Glossary Continued

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N O P Q R S T U V W X Y Z

Negative Amortization

When your monthly payments
are not large enough to pay all the interest due on the loan. This unpaid
interest is added to the unpaid balance of the loan. The home buyer
ends up owing more than the original amount of the loan.TOP

Net Effective Income

The borrower’s gross income
minus federal income tax.
TOP 

Non Assumption Clause

A statement in a mortgage
contract forbidding the assumption of the mortgage without the prior
approval of the lender.TOP

Note

A legal document that obligates
a borrower to repay a mortgage loan at a stated interest rate during
a specified period of time.TOP 

Office of Thrift
Supervision (OTS)

The regulatory and supervisory
agency for federally chartered savings institutions. Formally known
as Federal Home Loan Bank Board
TOP 

One Year Adjustable
Rate Mortgage

Mortgage where the annual
rate changes yearly. The rate is usually based on movements of a published
index plus a specified margin, chosen by the lender.TOP

Origination Fee

The fee charged by a lender
to prepare loan documents, make credit checks, inspect and sometimes
appraise a property; usually computed as a percentage of the face value
of the loan.TOP

Owner Financing

A property purchase transaction
in which the party selling the property provides all or part of the
financing.TOP 

Payment Change Date

The date when a new monthly
payment amount takes effect on an adjustable rate mortgage (ARM) or
a graduated-payment mortgage (GPM). Generally, the payment change date
occurs in the month immediately after the adjustment date.TOP

Periodic Payment
Cap

A limit on the amount that
payments can increase or decrease during any one adjustment period.
TOP 

Periodic Rate Cap

A limit on the amount that
the interest rate can increase or decrease during any one adjustment
period, regardless of how high or low the index might be.TOP

Permanent Loan

A long term mortgage, usually
ten years or more. Also called an “end loan.”TOP

PITI

Principal, interest, taxes
and insurance. Also called monthly housing expense.TOP 

Pledged Account
Mortgage (PAM):

Money is placed in a pledged
savings account and this fund plus earned interest is gradually used
to reduce mortgage payments.TOP

Points
(Loan Discount Points)

Prepaid interest assessed
at closing by the lender. Each point is equal to 1 percent of the loan
amount (e.g., two points on a $100,000 mortgage would cost $2,000).
TOP 

Power of Attorney

A legal document authorizing
one person to act on behalf of another.TOP

Preapproval

The process of determining
how much money you will be eligible to borrow before you apply for a
loan.TOP

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.TOP 

Prepayment

A privilege in a mortgage
permitting the borrower to make payments in advance of their due date.TOP

Prepayment Penalty

Money charged for an early
repayment of debt. Prepayment penalties are allowed in some form (but
not necessarily imposed) in many states.
TOP 

Primary Mortgage
Market

Lenders, such as savings
and loan associations, commercial banks, and mortgage companies, who
make mortgage loans directly to borrowers. These lenders sometimes sell
their mortgages to the secondary mortgage markets such as FNMA
or GNMA, etc…
TOP 

Principal

The amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining balance
of a mortgage.TOP

Principal Balance

The outstanding balance
of principal on a mortgage not including interest or any other charges.TOP

Principal, Interest,
Taxes, and Insurance (PITI)

The four components of a
monthly mortgage payment. Principal refers to the part of the monthly
payment that reduces the remaining balance of the mortgage. Interest
is the fee charged for borrowing money. Taxes and insurance refer to
the monthly cost of property taxes and homeowners insurance, whether
these amounts are paid into an escrow account each month or not.TOP 

Private Mortgage
Insurance (PMI)

In the event that you do
not have a 20 percent down payment, lenders will allow a smaller down
payment – as low as 3 percent in some cases. With the smaller down payment
loans, however, borrowers are usually required to carry private mortgage
insurance. Private mortgage insurance will usually require an initial
premium payment and may require an additional monthly fee depending
on your loan’s structure.TOP 

Qualifying Ratios

Calculations used to determine
if a borrower can qualify for a mortgage. They consist of two separate
calculations: a housing expense as a percent of income ratio and total
debt obligations as a percent of income ratio.
TOP 

Rate Lock

A commitment issued by a
lender to a borrower or another mortgage originator guaranteeing a specified
interest rate and lender costs for a specified period of time.TOP

Realtor®

A real estate broker or
an associate holding active membership in a local real estate board
affiliated with the National Association of Realtors.TOP

Real Estate Agent

A person licensed to negotiate
and transact the sale of real estate on behalf of the property owner.TOP 

Real Estate Settlement
Procedures Act (RESPA)

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

Recission

The cancellation of a contract.
With respect to mortgage refinancing, the law that gives the homeowner
three days to cancel a contract in some cases once it is signed if the
transaction uses equity in the home as security.
TOP 

Recording Fees

Money paid to the lender
for recording a home sale with the local authorities, thereby making
it part of the public records.TOP

Refinance

Obtaining a new mortgage
loan on a property already owned often to replace existing loans on
the property.TOP

Renegotiable Rate
Mortgage

A loan in which the interest
rate is adjusted periodically. See adjustable rate mortgage.
TOP 

RESPA

Short for the Real Estate
Settlement Procedures Act. RESPA is a federal law that allows consumers
to review information on known or estimated settlement costs once after
application and once prior to or at settlement. The law requires lenders
to furnish the information after application only.TOP

Reverse Annuity
Mortgage (RAM)

A form of mortgage in which
the lender makes periodic payments to the borrower using the borrower’s
equity in the home as collateral for and repayment of the loan.TOP

Revolving Liability

A credit arrangement, such
as a credit card, that allows a customer to borrow against a pre-approved
line of credit when purchasing goods and services.
TOP 

Satisfaction of
Mortgage

The document issued by the
mortgagee when the mortgage loan is paid in full. Also called a “release
of mortgage.”TOP

Second Mortgage

A mortgage made subsequent
to another mortgage and subordinate to the first one.TOP

Secondary Mortgage
Market

The place where primary
mortgage lenders sell the mortgages they make to obtain more funds to
originate more new loans. It provides liquidity for the lenders.TOP 

Security

The property that will be
pledged as collateral for a loan.TOP

Seller Carry Back

An agreement in which the
owner of a property provides financing, often in combination with an
assumable mortgage. See owner financing.
TOP 

Servicer

An organization that collects
principal and interest payments from borrowers and manages borrower
escrow accounts. The servicer often services mortgages that have been
purchased by an investor in the secondary mortgage market.TOP

Servicing

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.TOP

Settlement/Settlement
Costs

See closing/closing
costs
TOP 

Shared Appreciation
Mortgage (SAM)

A mortgage in which a borrower
receives a below market interest rate in return for which the lender
(or another investor such as a family member or other partner) receives
a portion of the future appreciation in the value of the property. May
also apply to mortgage where the borrowers shares the monthly principal
and interest payments with another party in exchange for part of the
appreciation.TOP

Simple Interest

Interest which is computed
only on the principle balance.TOP

Standard Payment
Calculation

The method used to determine
the monthly payment required to repay the remaining balance of a mortgage
in substantially equal installments over the remaining term of the mortgage
at the current interest rate.TOP 

Step Rate Mortgage

A mortgage that allows for
the interest rate to increase according to a specified schedule (i.e.,
seven years), resulting in increased payments as well. At the end of
the specified period, the rate and payments will remain constant for
the remainder of the loan.TOP

Survey

A measurement of land, prepared
by a registered land surveyor, showing the location of the land with
reference to known points, its dimensions, and the location and dimensions
of any buildings.
TOP 

Sweat Equity

Equity created by a purchaser
performing work on a property being purchased.TOP 

Third Party Origination

When a lender uses another
party to completely or partially originate, process, underwrite, close,
fund, or package the mortgages it plans to deliver to the secondary
mortgage market.TOP

Title

A document that gives evidence
of an individual’s ownership of property.TOP 

Title Insurance

A policy, usually issued
by a title insurance company, which insures a home buyer against errors
in the title search. The cost of the policy is usually a function of
the value of the property, and is often borne by the purchaser and/or
seller. Policies are also available to protect the lender’s interests.TOP

Title Search

An examination of municipal
records to determine the legal ownership of property. Usually is performed
by a title company.
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Total Expense Ratio

Total obligations as a percentage
of gross monthly income including monthly housing expenses plus other
monthly debts.TOP

Truth in Lending

A federal law requiring
disclosure of the Annual Percentage Rate to home buyers shortly after
they apply for the loan. Also known as Regulation Z.TOP

Two Step Mortgage

A mortgage in which the
borrower receives a-below-market interest rate for a specified number
of years (most often seven or 10), and then receives a new interest
rate adjusted (within certain limits) to market conditions at that time.
The lender sometimes has the option to call the loan due with 30 days
notice at the end of seven or 10 years. Also called “Super Seven” or
“Premier” mortgage.TOP 

Underwriting

The decision whether to
make a loan to a potential home buyer based on credit, employment, assets,
and other factors and the matching of this risk to an appropriate rate
and term or loan amount.TOP

Usury

Interest charged in excess
of the legal rate established by law.
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VA Loan

A long term, low-or-no down
payment loan guaranteed by the Department of Veterans Affairs. Restricted
to individuals qualified by military service or other entitlements.TOP

VA Mortgage Funding
Fee

A premium of up to 1-7/8
percent (depending on the size of the down payment) paid on a fixed
rate loan. On a $75,000 fixed-rate mortgage with no down payment, this
would amount to $1,406 either paid at closing or added to the amount
financed.TOP

Variable Rate Mortgage
(VRM)

See adjustable rate
mortgage
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Verification of
Deposit (VOD)

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

Verification of
Employment (VOE)

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

Warehouse Fee

Many mortgage firms must
borrow funds on a short term basis in order to originate loans which
are to be sold later in the secondary mortgage market (or to investors).
When the prime rate of interest is higher on short term loans than on
mortgage loans, the mortgage firm has an economic loss which is offset
by charging a warehouse fee.
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Wraparound Mortgage

Results when an existing
assumable loan is combined with a new loan, resulting in an interest
rate somewhere between the old rate and the current market rate. The
payments are made to a second lender or the previous homeowner, who
then forwards the payments to the first lender after taking the additional
amount off the top.TOP