Letters A-D
Mortgage Glossary
Mortgage Glossary
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We have assembled these terms to help you to have a better understanding of mortgage financing terminology. Click on a first letter of the word you want to look up. |
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- - A - Back to Top
- Abstract (of title)
- A written summary of the title history of a particular piece of real estate.
- Acceleration
Clause - A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
- Adjustable Rate
Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index. See Our ARM Loan Types page.
- Amortization
- Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.
- Annual Percentage
Rate (APR) - The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate. For more detailed information, view the APR page.
- Application Fee
- That part of the closing costs pre-paid to the lender at time of application to cover initial expenses. We never charge for applications. A more upfront method is to request that the borrower directly cover the $15 expense of running a credit report.
- Appraisal
- A report made by a licensed and qualified person as to the value of a property as of a given date.
- Assessed Value
- The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.
- Assumption of
Mortgage - The purchaser takes over
mortgage payments for the balance of the loan,
assuming primary liability. Unless specifically
released by the lender, the seller remains
secondarily liable.
- B - Back to Top - Balloon Mortgage
- A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term. See Our Balloon Loan Type page.
- Bankruptcy
- Bankruptcy is a legal declaration of the inability to repay debts. Bankruptcy should be viewed as a last resort. It will have a severe impact on a credit rating and will remain on a credit report for ten years. Furthermore, bankruptcy is not a solution in all cases. Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose: Chapter 7 and Chapter 13.
- Bridge Loan
- A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
- Buy down
- Often called a step down
payment, an interest rate buy down works with the
current market rates. It works by having money
advanced by an individual (e.g. builder, seller,
buyer, lender, developer) to lower monthly
mortgage payments for a few years or the whole
term. See Our
Buydown Loan page.
- C - Back to Top - Cap
(interest rate) - The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization.
- Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage's cap structure, and are usually represented as three numbers, such as 1/2/6, which means that the initial adjustment cap is one percent, the periodic cap is two percent, and the lifetime cap is six percent.
Initial Adjustment Cap
- An initial adjustment cap limits how much your interest rate can change at the first adjustment period. So if your adjustable rate mortgage has a one percent initial adjustment cap, your interest rate can only increase or decrease by a maximum of one percent at the first adjustment period.
Periodic Adjustment Cap
- A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. Usually a six month adjustable rate mortgage will have a one percent periodic adjustment cap while a one year adjustable rate mortgage will have a two percent periodic adjustment cap. So if your loan has a two percent periodic adjustment cap, your interest rate can only increase or decrease by a maximum of two percent per adjustment period.
Lifetime Cap
- A lifetime cap sets the maximum and minimum interest rate that you can be charged for the life of the loan. Lifetime caps vary by lender, but most adjustable rate loans have caps of five or six percent above the initial interest rate. So if your loan has a six percent lifetime cap, your interest rate can only increase or decrease by a maximum of six percent for the life of the loan.
- Cap
(payment rate) - The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Negative Amortization.
- Certificate Of Title
- A statement that shows ownership of property, stating that the seller has clear legal title.
- Chapter 7
- Under Chapter 7 bankruptcy, you petition the court to be freed from all your debts following the liquidation of almost all your assets. Certain assets, like your house, are usually exempt from liquidation. See Bankruptcy.
- Chapter 13
- In a Chapter 13 agreement, the court creates a debt repayment plan that allows the filer to keep their property. In order to file Chapter 13, a person must have a source of income and promise to pay part of their income to creditors. The court allows the filer to keep any assets that have debts against them if they pay them off under terms determined by the court. See Bankruptcy.
- Closing
- The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs. When you refinance, the signing of the new mortgage and paying all associated costs is called closing. See Closing Overview for more information.
- Closing Costs
- Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs." See Closing Costs Calculator page.
- Closing
Statement - A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account. See HUD1 Closing Statement for more information.
- COFI Index
- Stands for Cost Of Funds Index. The 11th District cost-of-funds index (COFI) is a popular index for adjustable-rate mortgages because the index follows (lags) changes in market interest rates. It reflects the average interest paid by savings institutions in the 11th District for their various sources of funds over a specified period of time.
- Commission
- An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.
- Commitment
- An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.
- Comparable
- Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
- Condominium
- Ownership of a single unit in a multi unit building or complex of buildings. Along with this goes a share of ownership of the common areas.
- Conforming Loan
- A loan that follows the strictest guidelines to be eligible for purchase or refinance by the two Federal agencies, Fannie Mae and Freddie Mac. The maximum loan amounts are listed below based on the number of units. This applies for first mortgages only. The maximum limit for second mortgages is $208,500.
- Contingency
- A condition likely to happen that must be met for a contract or a commitment to remain binding.
- Conventional
Mortgage - Any mortgage loan that is not insured by FHA, guaranteed by VA, or funded by a government authorized bond sale or grant.
- Convey
- To transfer real estate from one person to another.
- Credit Report
- The report to a prospective
lender on the credit standing of a prospective
borrower. (See Credit
Scores)
- D - Back to Top - Debt-To-Income
- The ratio of monthly debt
payments to monthly gross income. Lenders use a
housing DTI ratio (house payment divided by
monthly income) and a total DTI ratio (total debt
payments including the house payment divided by
monthly income) to determine whether a borrower's
income qualifies him or her for a mortgage.
Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. For the best interest rates this ratio should be below 28%. Example: With a gross income of $3700 per month, a total mortgage payment (PITI) of $973, the front ratio would be 26%.
Back Ratio: The total mortgage payment PLUS any car payments, credit card and any other loan payments divided by your total GROSS income. Traditionally must be below 36% but could be as high as 55%. Example: With a gross income of $3700 per month, a total mortgage payment of $973, a car payment of $212, 1 credit card payment of $59 and 1 credit card payment of $43 for a total of $1287 with a back ratio of 35%. - Deed
- A legal written document by which title to property is transferred.
- Deed Of Trust
- Some states hold title to property using a Deed of Trust rather than a mortgage. For the purpose of financing, on this site we use the terms interchangeably.
- Default
- Failure to fulfill the terms as agreed to in the mortgage of note.
- Down Payment
- The difference between the sale price of a property and the mortgage amount.
- Due-On-Sale
- A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.
See Non-conforming Loan. See Loan Limits.
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