Glossary of Mortgage Terms

Adjustable Rate Mortgage - A home loan fixed for a short period of time then adjusting to current market rates after the fixed period has ended.

Application – A complete list of all personal and qualifying data used to assess a borrower’s ability to qualify for a new home loan. 

Appraisal – A written report obtained from a licensed appraiser containing an opinion of value of a property along with details leading to the reasoning leading to this opinion.  The factual data supporting the opinion, such as comparables, appraisal formulas, and qualifications of the appraiser, will also be set forth. 

ARM – See Adjustable Rate Mortgage

Automated Underwriter- An advanced computer underwriting system that issues loan approvals without the need for a human to read and interpret underwriting guidelines.

Borrower – A person or persons acquiring a loan to be repaid with interest.

Buydown – A payment to the lender causing the lender to reduce the interest rate charged. 

Interest Rate Cap – The limit on an adjustable rate mortgage as how high the rate can increase over the life of the loan.

Co-Borrower – A second borrower on a loan application equally responsible for the repayment of the loan.

Commission – The amount of money earned by an individual for performing a service.  Generally higher commissions are associated with higher rates and fees. 

Comparable – A similar recently sold property in the immediate area being used as a comparison to aid in the determination of the value of the subject property.

Conforming Loan – A home loan amount under $417,000

Credit – An applicant’s overall payment history of all loans and revolving credit as determined by obtaining a consumer credit report.

E-fax – A fax number that delivers the faxed documentation securely via e-mail in a paperless format.

Equity- The market value of real property less the existing liens on said property.

Escrow – A neutral third party who issues specific instructions for the completion of a real estate transaction. 

Escrow Impound Account – See Impounds

Fannie Mae – A Government Sponsored Enterprise (GSE) dealing in the purchase of first mortgages.

FHA – Federal Housing Administration

FHLMC – See Freddie Mac

FICO (Fair Isaac and Company, Inc.) – A number which scores or rates the credit of a loan applicant.  The score is based on many factors, such as amount of credit, past delinquencies, bankruptcy, frequency of inquiries and many other factors.  Lenders use the score to determine whether to make the loan and the score may influence the interest rate charged on said loan. 

Fixed Rate – An interest rate that does not change over the life of the loan

FNMA – See FannieMae

Freddie Mac – A Government Sponsored Enterprise (GSE) dealing in the purchase of first mortgages.

HELOC – See Home Equity Line Of Credit

Home Equity Loan – A loan made to a borrower based on the equity in the home.  Usually a second mortgage or HELOC.

Home Equity Line Of Credit – A second loan against a property the proceeds of which can be used for debt consolidation, home improvements or other purposes.  As the balance is paid down, the difference between the loan limit and current balance can be re-accessed for a given period of time.  

Impounds – Account held by the lender for periodic payment of taxes and/or insurance.  The borrower pays 1/12th of the annual property tax or insurance amount with each monthly mortgage payment.  The lender pays the tax or insurance bill when due with the accumulated funds.

Index – Used to determine the interest rate of an adjustable rate mortgage.  For example: the change in the T-bills with a 1 year maturity.  The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rate is the “index” for the change of the interest rate in the specific adjustable rate mortgage.

Interest – Money charged for the use of money (principal).

Interest Only Loan – A mortgage where the monthly payments for a pre-determined amount of time are used to pay interest only.  No principal is paid with the interest only payments. 

Interest Rate – The percentage of an amount of money charged by the lender on the loan amount outstanding.  Usually expressed as an annual percentage.

Interest Rate Buydown – See Buydown

Internet Mortgage Lender – A lender that allows you to access their website via the internet.

Jumbo Loan – A home loan amount of $417,001 or greater.

Loan – The lending of a principal sum of money to a borrower who promises to repay said sum with interest.

Lock In – A guaranteed interest rate provided the loan is funded within an agreed upon period and approved as submitted.

Margin – In an adjustable rate loan, the difference between the index rate and the interest rate of the loan.  Example: The borrower’s interest rate is 2% over the prime rate.  The 2% is called the margin.

Mortgage – A loan on home 

Occupancy – The nature of who resides in the home in question.  Generally owner or tenant.

Rate Reservation – The preservation of a specific interest rate at a specific cost on a given loan program provided the loan documents and items needed are returned within 48 hours of loan application completion and the applicant meets all qualifying criteria. 

Refinance – The process of obtaining a new home loan for the purposes lowering monthly payments, obtaining cashout, paying off debts or any combination thereof.

Principal – The amount of debt not including interest, the face value of a note.

Private Mortgage Insurance (PMI) – Insurance against a loss by a lender in the event of a default by the borrower.  The insurance is similar to the insurance issued by FHA except that it is issued by a private insurance company.  The premium is paid by the borrower and is included in the monthly mortgage payment.

Property Type – Nature of the property in question.  Generally single family residence, condominium or multiple units.

Purchase – To acquire new piece of real estate.

Title Insurance – Insurance against a loss resulting from defects of title to a specifically described parcel of real property.  Defects can range from chain of title to encumbrances.

Vesting – The nature in which the title to the property will be held.