Glossary of Mortgage & Lending Terms
Abstract of Title
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.
Acceptance
A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.
Account Termination Fee
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.
Additional Principal Payment
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.
Adjustable-Rate Mortgage (ARM)
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.
Adjustment Cap
A limit to how much a variable interest rate can increase or decrease in a single adjustment period.
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period
The period of time between adjustment dates for an adjustable-rate mortgage (ARM).
Affordability Analysis
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.
Amortization
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.
Amortization Table or Schedule
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.
Amortization 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.
Annual Adjustment Cap
A limit on how much the variable interest rate on a loan can increase or decrease each year.
Annual Percentage Rate (APR)
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.
Application Fees
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.
Appraisal or Appraised Value
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.
Appraisal Contingency
A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.
Appreciation
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.
Approved Term (After Approval)
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.
Approved Term (Before Approval)
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.
Assessed Value
The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.
Assignment
The method of transferring a right or contract, such as the terms of a loan, from one person to another.
Assumable Loan
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.
Balance Sheet
A dated financial statement (in table form) that shows your assets, liabilities and net worth.
Balloon Loan
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.
Base Rate
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.
Basis Point
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.
Bond
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.
Break Even Point
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 identifies how many months it will take to recoup the cost of paying for the discount points. For example, if $3,600 is paid to reduce the interest rate and the monthly savings is $100, it would take 36 months (3 years) to break even.
Bridge Loan
A type of mortgage financing used between the termination of one loan and the start of another. For example, a borrower may take out a bridge loan secured by their current home so they can close on a new house before their existing home is sold.
Broker
A third party who arranges funding or negotiates a contract between parties but does not lend the money themselves.
Broker Fees
Fees charged by a real estate or mortgage broker for providing assistance during a real estate transaction.
Buydown
The lump-sum prepayment of all or part of your mortgage interest by a lender or homebuilder to lower your monthly mortgage payment, typically for a period of 1–3 years.
Call Option
A provision in a loan that gives the lender the right to demand full repayment of the loan immediately after a specified period or for a specified reason.
Cap
A limit on how much a variable interest rate can increase. Adjustable-rate mortgages typically have annual and lifetime caps to limit payment increases.
Cash Available for Closing
Funds the borrower can use to cover down payment and closing costs, excluding cash reserves or funds from restricted sources.
Cash to Close
The total cash a homebuyer needs at loan closing, including the down payment and closing costs.
Cash-Out Refinance
A refinance where the new loan exceeds the old loan balance and the difference is given to the borrower in cash, often used for debt consolidation or home improvements.
Ceiling Rate
The maximum interest rate that can be charged on a variable or adjustable-rate mortgage (ARM).
Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a VA loan.
Certificate of Reasonable Value (CRV)
A VA-issued document establishing the maximum property value and loan amount for a VA loan based on an appraisal.
Certificate of Title
A statement confirming the legal owner of a property, based on public records, issued by a title or abstract company.
Chain of Title
The complete history of ownership and transfers of title to a property.
Clear Title
A title free of liens or legal questions regarding ownership.
Close
The date you sign your loan documents. For refinances, a three-day rescission period may apply before funds are disbursed.
Closed
A status indicating that no further action is required on the loan item.
Closing
The meeting where all final documents are signed and notarized to complete the loan process.
Closing Costs
Fees paid during the closing process, typically 3% of the loan amount. They include lender, legal, and appraisal fees but exclude escrow or insurance funds.
Closing Date
The scheduled date for signing your loan documents.
Closing Disclosure (CD)
A document outlining loan terms, including interest rate, monthly payment, and closing costs, provided at least 3 business days before closing.
Closing Statement
An itemized accounting of all funds exchanged between buyer and seller in a real estate transaction.
Co-Borrower
An additional person on a loan who shares full repayment responsibility and rights to the loan proceeds.
COBRA
A federal law allowing former employees to continue their group health coverage at their own expense for up to 18 months.
Coinsurance
A cost-sharing agreement where both insurer and insured share financial responsibility for property losses based on policy limits.
Collateral
An asset pledged to secure a loan, such as a house or car. Failure to repay may result in loss of the collateral.
Collection
Efforts to bring a delinquent loan current, including legal steps that may lead to foreclosure.
Combination Loan
A mortgage that includes a first mortgage and a home equity second mortgage, often used to avoid jumbo rates. Example: 70/10/20 structure.
Combined Liens
The total amount owed across all loans on a property, used to calculate home equity.
Combined Loan-to-Value Ratio (CLTV)
The total amount of all loans on a home divided by the appraised value, expressed as a percentage.
Commitment Letter
A formal offer from a lender that states the terms and amount of a loan they agree to fund.
Comparables (Comps)
Recently sold properties with similar features, used by appraisers to determine a home’s market value.
Compound Interest
Interest calculated on both the principal and previously accrued interest.
Conforming Loan
A loan that meets the criteria set by Fannie Mae and Freddie Mac and is eligible for purchase by these agencies.
Construction Loan
A short-term loan used to finance the building of a home, with funds disbursed as work progresses.
Contingency
A clause in a purchase agreement requiring certain conditions to be met before finalizing the sale, like loan approval or inspection.
Contractual Payment: First Mortgage
The required monthly mortgage payment including principal, interest, and possibly insurance and taxes.
Contractual Payment: Home Equity Line of Credit
The required monthly payment based on the line balance and loan terms, which may include interest-only or principal payments.
Conventional Loan
A loan that is not insured or guaranteed by the government. It may be conforming or non-conforming.
Convertibility Clause
A feature of some ARMs that allows the borrower to switch to a fixed-rate loan under specified conditions.
Convertible ARM
An adjustable-rate mortgage that allows conversion to a fixed-rate mortgage at designated times.
Convey
To legally transfer property ownership from one party to another via deed or contract.
Co-signer
A person who agrees to repay a loan if the primary borrower defaults. The co-signer shares legal responsibility but doesn’t receive the loan’s benefits.
Cost of Funds Index (COFI)
An index representing the average interest expense of financial institutions, used to set some ARM rates.
Covenant
A condition or restriction written into a mortgage or deed regarding property use that may trigger foreclosure if violated.
Credit Bureau
An agency that collects and maintains credit information. Major bureaus include Equifax, Experian, and TransUnion.
Credit Limit
The maximum amount a borrower may draw from a line of credit.
Credit Monitoring Service
A service that tracks changes in your credit report to detect potential identity theft or fraud.
Credit Report
A detailed summary of an individual’s credit history, used by lenders to assess creditworthiness.
Credit Risk
The risk that a borrower may default on a loan. Lower credit risk usually results in better loan terms.
Credit Score
A number that indicates a borrower’s creditworthiness. Higher scores improve the chances of loan approval and better interest rates.
Creditor
An entity that lends money or provides credit and expects repayment.
Creditworthiness
A borrower’s perceived ability to repay debt, based on income, debt, and credit history.
Cumulative Interest
Total interest that has accrued on a loan over time.
Curtailment
An additional payment made to reduce the principal balance of a loan.
Debt Consolidation
A single loan used to pay off multiple debts, typically spread out over a longer repayment term. Many homeowners use a home equity line of credit for debt consolidation.
Debt-to-Income Ratio
Your total monthly debt obligations (including loans, credit cards, and court-ordered payments) divided by your gross monthly income, expressed as a percentage. FHA guidelines suggest your monthly mortgage should not exceed 31% of your gross income, and total debt should not exceed 43%.
Deed (Warranty or Quit-Claim)
A legal document that transfers ownership of real estate from the seller to the buyer at closing. Lenders usually require a title search to confirm ownership before approving a loan.
Deed of Trust
Used in some states instead of a mortgage, this document transfers the property title to a trustee as security for loan repayment.
Default
Failure to make required mortgage payments or meet other terms of a loan, which may lead to foreclosure.
Delinquency
When a borrower fails to make payments on time, the loan is considered delinquent.
Down Payment
The portion of the home’s purchase price paid in cash up front. Typically ranges from 5% to 20%, depending on loan type, lender requirements, and credit history.
Draw
The act of withdrawing funds from an available line of credit.
Draw Period
The time frame during which you can withdraw funds from a line of credit. Once this period ends, you may need to repay the balance or refinance.
Due-on-Sale Provision
A clause in a mortgage that allows the lender to demand full repayment if the property is sold or transferred.
Earnest Money
A deposit made to show good faith when entering into a real estate purchase agreement. It’s typically applied toward the down payment at closing.
Encumbrance
Any claim, lien, or liability attached to a property that may limit its transfer or use—such as unpaid taxes, mortgages, or leases.
Equal Credit Opportunity Act (ECOA)
A federal law requiring lenders to provide equal access to credit regardless of race, color, religion, national origin, sex, marital status, age, or income from public assistance programs.
Equity
The difference between the fair market value of your home and the outstanding balances on your mortgage and other liens. Equity increases as the mortgage is paid down or the property value rises.
Escrow
Money or documents held by a neutral third party until certain conditions are met—commonly used in real estate transactions to manage funds until closing.
Escrow Account
An account created to collect and hold funds from your monthly mortgage payments to cover property taxes and homeowners insurance, preventing large one-time payments.
Escrow Impound Account
A type of escrow account set up by the lender to collect funds as part of your monthly mortgage payment, which are then used to pay property taxes and homeowners insurance when due.
Escrow Analysis
A review performed periodically to compare escrow payments made with actual bills paid from the escrow account. It also projects future expenses and adjusts your monthly escrow portion accordingly.
Escrow Overage
Occurs when the balance in your escrow account exceeds the required minimum. This may result in a refund or a credit toward future payments if property taxes or insurance premiums decrease.
Escrow Shortage
Occurs when your escrow account balance falls below the required minimum, often due to increased property taxes or insurance premiums. You may need to pay the shortage in a lump sum or through increased monthly payments.
Extra Payment / Payment Overage
Any amount paid beyond your required monthly mortgage payment. It can either be applied to the next payment or directly reduce your loan principal, helping to lower future interest costs.
Fair Credit Reporting Act (FCRA)
A federal law that provides consumers with rights regarding their credit information. It requires credit bureaus to report accurate credit histories to authorized entities such as lenders, insurers, and employers.
Fair Market Value
The estimated price a property would sell for on the open market. It is often determined by a professional appraisal.
Fannie Mae
The Federal National Mortgage Association, a government-sponsored enterprise that purchases and securitizes mortgages to provide liquidity in the mortgage market.
Federal Housing Administration (FHA)
An agency within HUD that insures residential mortgages and sets standards for underwriting and property construction on FHA-insured loans.
Fee Simple
The highest form of property ownership. It grants full rights to use, sell, or lease the land without restrictions, subject only to local laws.
FHA Home Loan
A mortgage insured by the FHA. It allows lenders to offer favorable terms to borrowers by reducing their risk, especially helpful for those with lower credit scores or smaller down payments.
FICO®
Stands for Fair Isaac Corporation, the company that developed the widely used credit scoring model. Scores range from 300 to 850, with higher scores indicating lower credit risk.
Finance Charge
The total cost of borrowing, expressed in dollars. It includes interest, points, and some other fees, but excludes certain closing costs.
First Mortgage
The primary lien on a property. It has priority over all other claims in the event of foreclosure.
Fixed-Rate Mortgage
A loan where the interest rate remains the same for the entire term, providing predictable monthly payments.
Fixed-Rate Option (Fixed-Rate Loan Option)
An option on some home equity lines that allows you to convert part of the balance to a fixed rate and fixed payment over a set term, sometimes for a fee.
Floating Rate
A mortgage interest rate that is not locked in. It fluctuates with the market until the borrower chooses to lock it, making the rate and discount points variable.
Flood Certification
A document that indicates whether a property is in a flood zone. It is usually required by lenders during the mortgage process.
Flood Insurance
Insurance that covers property loss due to flooding. It is typically required for homes located in designated flood hazard areas.
Forbearance
An agreement to temporarily pause or reduce mortgage payments during a financial hardship. Interest usually continues to accrue during the forbearance period.
Foreclosure
A legal process in which a lender sells a property to recover the loan balance after a borrower defaults. The borrower may still owe a deficiency if the sale doesn’t cover the full debt.
Forfeiture
The loss of money, property, or rights due to a violation of legal or contractual obligations.
Form 1098
A tax form that reports the amount of mortgage interest and points paid during the previous year, used for claiming deductions.
Freddie Mac
A government-sponsored enterprise that buys mortgages from lenders to provide liquidity, similar to Fannie Mae.
Funding Date
The date when the loan funds are officially disbursed to the borrower or applied toward the purchase of the property.
Good Faith Estimate (GFE)
An itemized list of estimated costs associated with obtaining a home loan. Lenders are required to provide this document to borrowers within three business days of receiving a loan application.
Government Loan
A mortgage that is insured or guaranteed by a government agency such as the FHA, VA, or RHS. This backing protects lenders against loss and often allows for more favorable terms for borrowers compared to conventional loans.
Government National Mortgage Association (GNMA or Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Ginnie Mae guarantees the timely payment of principal and interest on mortgage-backed securities backed by federally insured or guaranteed loans, such as FHA or VA loans.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home, typically with a 30-year term: a 10-year draw period followed by a 20-year repayment period. It can be used for major expenses such as home improvements, debt consolidation, or emergencies. Borrowers can access funds during the draw period via checks, debit cards, or online transfers.
Homeowners Insurance
Insurance that protects your home from damage caused by fire, storms, theft, vandalism, and other hazards. It also includes personal liability coverage. Most lenders require you to carry homeowners insurance and name them as a payee on any claim disbursements. Also referred to as hazard insurance.
HUD (U.S. Department of Housing and Urban Development)
A federal agency that administers housing programs and promotes homeownership. HUD oversees Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and enforces laws such as the Real Estate Settlement Procedures Act (RESPA).
Impounding
The collection and placement of funds by a lender into an account to pay the borrower’s property taxes and insurance premiums when they become due.
Income
Regular income from earnings, commissions, investments, rental payments, or other sources.
Income Property
Real estate developed or improved to produce income, typically through rental or lease agreements.
Index
A financial measurement used to determine how much a mortgage interest rate will change during an adjustment period. Lenders use various financial index rates such as the Secured Overnight Financing Rate (SOFR) and Treasury-Indexed ARMs (T-Bills).
Inflation Rate
The rate at which the prices of consumer goods and services increase, usually expressed as a percentage over a specific period of time.
Initial Advance
The process of obtaining an advance against available credit under your line of credit.
Initial Advance at Closing
A funds transfer option that may reduce your interest rate. To qualify, maintain a specified minimum balance for the first three consecutive billing cycles to receive a discount on your approved rate for the life of the line.
Initial Advance of $25,000 or More
A discount applies for drawing an initial advance of $25,000 or more and maintaining that minimum balance for the first three consecutive billing cycles.
Initial Draw Amount
The proceeds from a home equity line of credit or construction loan up to an amount that the borrower is allowed to request at closing.
Initial Rate
The starting interest rate, sometimes called a “teaser rate.” It typically offers low interest and payments at the beginning but may adjust at the next adjustment period.
Inquiry
A request for your credit report, made either by you or a company considering you for a credit offer.
Installment Loan
A loan that is repaid in equal payments, known as installments.
Insurance
A contract that provides compensation for specific losses in exchange for a periodic payment. The contract is known as an insurance policy, and the payment is called an insurance premium.
Insurance Binder
A temporary document stating that insurance coverage is in effect. It is valid until the permanent policy is obtained.
Insured Mortgage
A mortgage that is protected by an insurer in case of default. The insurance protects the lender (not the borrower) if the borrower defaults on the loan.
Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. This rate is used to calculate monthly payments.
Interest-Only Loan
A loan in which you pay only the interest due for a portion of the loan term, with no reduction in principal. After the interest-only period, larger payments may be required to cover the principal.
Interest Rate
The annual cost of a loan to the borrower, expressed as a percentage. This rate does not include other fees charged for the loan.
Interest Rate Cap
A limit on how much a variable interest rate can increase at any one time. Loans often include annual (or semiannual) caps and lifetime caps to limit payment increases. Typically, the rate can increase by 2-5% per adjustment period.
Investment Property
Property purchased to generate rental income or to be sold once it has appreciated in value.
Judgment
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.
Jumbo Loan
Also known as a nonconforming loan, a jumbo loan exceeds the limits that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas may have temporary conforming loan limits higher than the typical conforming limits. Lenders may charge additional fees and place restrictions due to the large loan amounts.
Liabilities
A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.
Lien
The legal claim of a creditor on a borrower’s property, to be used as security for a debt.
Lien Holder
An individual or entity that has placed a lien on real property.
Lifetime Adjustment Cap
A limit on how much the variable interest rate can increase during the term of a loan.
Line of Credit
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.
Loan Commitment
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.
Loan Estimate (LE)
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.
Loan Modification
Changes to one or more of the terms of a loan.
Loan Origination
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.
Loan-to-Value Ratio (LTV)
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%).
Lock Period
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.
Manufactured Housing
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.
Margin
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.
Maturity Date
The day on which the outstanding principal, interest and fees on a loan must all be repaid.
Miscellaneous Payment
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.
Mobile Home
A type of residence that’s built upon a wheeled chassis and can be transported from site to site.
Modular Home
A factory-built home that’s erected on-site, with the appearance and characteristics of a site-built residence.
Mortgage
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 deeds of trust and/or security deeds.
Mortgage Insurance
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).
Mortgage Type
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.
Multi-family Residence (2 to 4 Units)
A residential property with 2 to 4 individual housing units (duplex, triplex or quadplex).
Negative Amortization
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.
New Line Amount
The sum of the existing credit line and the amount of additional credit requested.
No Closing Cost Loan
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.
Nonowner Occupied
Properties in which the owner does not live.
Note
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.
Note Rate
The interest rate stated in a mortgage note.
Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Option ARM
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.
Origination
The date that the proceeds of a loan are disbursed.
Origination Date
The date on which a loan is funded or disbursed.
Origination Fee
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.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.
Owner-Occupied
A property that the owner occupies as a principal residence.
Payment Cap
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.
Payment Change Date
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.
Payoff
Payment of the outstanding balance of a loan in full. Also, the amount required to pay the outstanding balance in full.
Per Diem Interest
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.
PITI
An acronym for principal, interest, taxes and insurance. Also referred to as the monthly housing expense.
Points
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.
Pre-Approval
A lender’s conditional agreement to lend a specific amount of money to a homebuyer under a specified set of terms.
Prearranged Refinancing Agreement
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.
Prepaid Expenses
The expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).
Prepaid Interest
Interest collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.
Prepayment
An amount paid to reduce the principal balance of a loan before the principal is due.
Prepayment Penalty
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.
Prequalification
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.
Prime Rate
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.
Principal & Interest
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.
Principal Balance
The unpaid portion of the loan amount. The principal balance does not include interest or any other charges.
Principal Payment
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.
Processing Fee
A fee charged to cover the administrative costs of processing a loan request.
Promissory Note
A written promise to repay a specified amount over a specified period of time.
Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Qualifying Ratios
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.
Rate
The amount of interest on a loan, expressed as a percentage.
Rate lock
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.
Rate lock expiration
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.
Rate reduction option
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.
Real Estate Settlement Procedures Act (RESPA)
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.
Reamortize
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.
Recorder
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.
Recording
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.
Recording fee
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.
Reduced documentation
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.
Refinance
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.
Rehabilitation loan
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.
Repayment period
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).
Rescission
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.
Reserves
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.
Right of first refusal
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.
Rural housing 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.
Rural Housing Service (RHS)
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.
Second home
A property occupied part-time by a person in addition to his or her primary residence.
Secured loans
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.
Security
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.
Settlement
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.
Settlement agent
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.
Short sale
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.
Single-family residence
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).
SOFR
Secured Overnight Financing Rate; SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
Start rate
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.
Subordinate financing
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.
Term
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.
Third-party fees
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.
Title
Written evidence of ownership in property.
Title company
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.
Title insurance
Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.
Title search
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.
Transaction fee
The fee that may be charged each time you draw on your credit line.
Treasury index
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.
Trustee
A fiduciary that holds or controls property for the benefit of another.
Truth in Lending Act
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.
Underwriter
The person who approves or denies a home loan, based on the lender’s underwriting and approval criteria.
Underwriting
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.
Uniform Residential Loan Application (1003)
The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.
Unpaid Principal Balance
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.
Unsecured lines of credit
Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.
Unsecured 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.
Upfront costs
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.
VA loan
A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces.
Vacation home
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 a second home.
Variable rate
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.
Variable-rate monthly minimum payment
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.
W-2
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.
Walk-through
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.
What-if analysis
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.
Windstorm insurance
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.
Wire transfer
A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.
Year-end statement
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.