adjustable rate mortgage (ARM)
An ARM is a variable interest rate loan. The lender may change the interest rate on this mortgage, within limitations, to follow a specified index to more readily reflect market rates.

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

amortization
The systematic repayment of a loan through periodic installments of principal and interest over the entire term of the loan agreement.

amortization schedule
A schedule which shows how much of each payment is applied to the principal and how much is applied to the interest during the term of the loan, showing the balance until it reaches zero.

annual percentage rate (APR)
The effective interest rate, not the rate effective on your loan. It is calculated as the value created according to a government formula that reflects the true annual cost of borrowing, expressed as a percentage. A rough formula that you can use to figure out your APR is this:

(Loan amount - closing costs) * interest rate = Estimated APR

The estimated APR is always going to be higher than your note rate, as you are using the same payment on a smaller amount.

application
A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts and more.

appraisal
An estimate of the value of a property based on comparison of real estate prices and the market for real estate.

appreciation
Increases in property value due to fluctuations in the market, inflation, et al.

assessment
Determining a property’s value for the purpose of taxation.

balloon mortgage
A mortgage that requires the remaining principal balance to be fully paid during a specified amount of time. For example, a balloon mortgage may be amortized as if it will be paid in thirty years, but the principal and accrued interest would actually be due in ten. This is a popular option to those planning to sell or refinance their property within a definite period of time.

balloon payment
The final lump sum that is paid at the end of the balloon mortgage.

bankruptcy
A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for “A” paper loans until after two years after declaration and a re-establishment of credit.

broker
Usually refers to a company or individual that does not lend the money for the loans themselves, but acts as a middleman for larger lenders or investors. Generally, a broker is anyone who acts as an agent, bringing two parties together for a transaction and earning a fee for their services. Realtors, for the most part, are agents who work for brokers. In other cases, realtors can be brokers as well.

bridge loan
An equity loan secured to solve short-term financing problems.

buydown
Allows loans to be made at less-than-market interest rates by paying front-end discounts. The interest rate is brought down for a temporary period, usually from one to three years. In order to acquire this discount, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. After the discount period, the payment is calculated as the note rate.

caps
A set percentage amount by which an ARM may adjust each adjustment period. It is usually given in a format as such: 3/6. The first number indicates how much a loan may adjust at an adjustment period (3%), and the second number indicates how much a loan may adjust over its lifetime (6%).

clear title
A title that is free of liens or any legal question as to the ownership of the property.

closing
Final arrangements to transfer title of property as well as allocate charges and credits.

closing costs
Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee and credit report charges. All closing costs are separated into “non-recurring,” and “prepaid.” Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.

cloud
An outstanding claim or encumbrance that, if valid, would affect or impair the owner’s property title.

collateral
Property, real or personal, pledged as a security to back up a promise. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust.

conventional mortgage
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees or private insurance. This is usually given at an 80% loan-to-value ratio.

credit loan
A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.

credit rating
Used by lenders to assess borrowers’ credit-worthiness or risk profile. A credit rating is expressed as letter grades, such as A, B+, or C-, etc. Ratings are based on factors such as payment history, bankruptcies and charge-offs.

credit-related expenses
The sum of foreclosed property expenses plus the provision for losses.

credit-related losses
The sum of foreclosed property expenses plus charge-offs.

credit report
A report, prepared by a credit bureau, that describes the financial circumstances of a borrower and outlines items like credit card balances, delinquent payments, student loans outstanding, etc.

debt-to-income ratio (DTI)
The ratio of aggregate monthly debt to aggregate monthly income.

deed
A legal document proclaiming title to a property.

deed of trust
Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.

default
Failure to meet an obligation/payment when due.

delinquency
Late- or non-payments of principal, interest, taxes, or insurance.

deposit
A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the “earnest money deposit.”

depreciation
In real estate and mortgage terms, the decline in the property value.

discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.

discount points
A term used in government-subsidized loans, such as FHA and VA loans. Refers to any “points” (one percent of the loan amount) paid in addition to the one percent loan origination fee.

down payment
The part of the property purchase price that a buyer pays in cash without the financing of a mortgage.

easement
Giving other persons, other than the owner, access to a property.

eminent domain
The government right to take private property for public use dependent on the payment of its fair market value.

encumbrance
Any lien against a property or any restriction on its use, such as an easement; a right or interest in a property held by one who is not the legal owner.

Equal Credit Opportunity Act (ECOA)
The act declaring the elimination of discrimination on the basis of age, sex, and race in finance.

equity
The difference between the current market value of a property and the principal balance of all outstanding loans.

escrow
A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.

escrow account (impound account)
An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner’s insurance when they are due. This eliminates the number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.

escrow analysis
An analysis performed by a lender each year to escrow accountholders to ensure that the correct amount of money is being collected to cover anticipated payments.

estate
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.

Fair Credit Reporting Act
A law that protects consumers that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.

Fannie Mae (FNMA)
The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nations largest supplier of home mortgage funds.

Federal Housing Administration (FHA)
An agency under the U.S. Department of Housing and Urban Development (HUD), it insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.

fee simple
The best title that one can obtain; unqualified and conveys the highest bundle of rights.

FHA mortgage
A mortgage that is insured by the FHA, and will be referred to as a government loan.

firm commitment
A lender’s agreement to provide a loan to a specific borrower on a specific property.

first mortgage
A mortgage that has priority over other mortgages.

fixed-rate mortgage
A mortgage where the interest rate remains the same during the entire term of the loan.

forbearance
The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent.

foreclosure
The legal procedure in which real estate is sold by the lender to pay a defaulting borrower’s debt.

401(k)/403(b)
An investment plan sponsored by employers that allows individuals to set aside tax-deferred income for retirement or emergency purposes. A 401(k) applies to private corporations, while a 403(b) applies to nonprofit organizations.

401(k)/403(b) loan
A loan that can be taken against the amount accumulated in the 401(k)/403(b) plans, if so allowed by the plan administrator. Loans against these plans are an acceptable source of down payment for most types of other loans.

Good Faith Estimate 
An estimate of charges that a borrower is likely to incur in connection with a loan closing.

government loan
A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran’s Administration), or RHS (Rural Housing Authority).

Government National Mortgage Association (Ginny Mae)
Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.

grace period
A time allowed, usually 15 days, for making late payments without a penalty.

hazard insurance
Insurance that covers physical damage to a property.

Home Equity Conversion Mortgage (HECM)
Also known as the reverse annuity mortgage. This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Borrowers don’t qualify on the basis of income, but on the value of their home. Such a loan does not have to be repaid until the borrower no longer occupies the property.

home equity line of credit
A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount.

home inspection
A thorough assessment by a professional regarding the structural and mechanical condition of a property.

homeowner’s insurance
An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.

homeowner’s warranty
An insurance policy that is purchased by a buyer that covers certain repairs, should they be necessary over a certain period.

HUD
Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.

hybrid financing
The joining together of two forms of finance, such as combining a convertible loan with a participation loan, wider which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property.

interest
Money (“rent”) paid for the use of money

interest only
A term loan arrangement calling for payments of interest only, not to include any amount for the principal.

jumbo loan
A loan that is above $417,000. A jumbo loan cannot be funded by Fannie Mae and Freddie Mac, and usually carries a higher interest rate.

lease
A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

liability insurance
Insurance that protects property owners against claims that allege negligence or inappropriate action that resulted in bodily injury or property damage to another party,

lien
A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.

life cap
A limit on the amount that an interest rate can be increased or decreased in an adjustable rate mortgage (ARM).

loan
The principal, or amount of total borrowed money, that is repaid with interest.

loan officer
An intermediary between lending institutions and borrowers, loan officers solicit loans, represent creditors to borrowers, and represent borrowers to creditors.

loan origination
What the process of obtaining new loans is called.

loan servicing
A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

loan-to-value ratio (LVR)
Relationship between amount of a mortgage loan and the value of the property; expressed as a percentage.

margin
The difference between the interest rate and the index on an adjustable rate mortgage (APM).

maturity
Due date of a loan.

modification
Any change to the original terms of a mortgage.

mortgage
A legal document that pledges property to a creditor for the repayment of the loan, and the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.

mortgagee
The lender in a mortgage agreement.

mortgage banker
A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is that bankers funds their own loans and sell them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.

mortgage broker
A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.

mortgage insurance
Insurance that covers the lender against losses incurred as a result of a default on a home loan. This is usually required on all loans that have a loan-to-value higher than eighty percent. Mortgages that have an 80% LTV that do not require mortgage insurance have higher interest rates. The lenders then pay the mortgage insurance themselves. In addition, FAA loans and some first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

mortgagor
The borrower in a mortgage agreement.

negative amortization
Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result.

no cash-out refinance
A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage.

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

note rate
The stated interest rate on a mortgage note.

origination fee
On a conventional loan, it is the total number of points a borrower pays, a point equaling one percent of the loan amount. On a government loan, it is one percent of the loan amount.

option payment loan
A loan program that is typically an adjustable rate mortgage with added flexibility of making one of several possible payments (i.e. introductory payment – usually causing a negative amortization, interest only payment, 30 year fully amortized payment and a 15 year fully amortized payment)  on your mortgage every month, in order to better manage your monthly cash flow.

owner’s title policy
A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.

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). The payment change date occurs the month immediately after the interest rate adjustment date.

periodic rate cap
The limit on the amount that payments can increase or decrease during any one adjustment period in an ARM (adjustable rate mortgage), regardless of how high or low the index fluctuates.

PITI
PITI stands for principal, interest, taxes, and insurance. An “impounded” loan means that the monthly payment covers all of these, and perhaps mortgage insurance, if your loan so calls for it. If one does not have an “impounded” account, then the lender still calculates these amounts separately and uses it as part of determining one’s debt-to-income ratio.

PITI reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The PITI (principal, interest, taxes, and insurance) must equal the amount that the borrower would have to pay for PITI for a determined number of months.

planned unit development (PUD)
A type of ownership where individuals actually own the building or unit they reside in, but shared areas are owned jointly with the other members of the development or established association.

points
Amount of discount on a mortgage loan stated as a percentage, with 1 point equaling 1 percent of the face amount of the loan. A discount of one point raises the net yield on the loan by approximately one-eighth of 1 percent.

pre-approval
A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.

pre-payment
Any amount paid so as to reduce the principal before the due date.

pre-payment penalty
A fee that may be imposed against a borrower who pays off a loan principal before its due date.

pre-qualification
After a loan officer has made inquiries about a borrower’s debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower’s chances for qualifying for a home loan.

prime rate
Interest charged by financial institutions to top-rate borrowers.

principal
The amount borrowed less the interest rate incurred.

private mortgage insurance (PMI)
Mortgage insurance issued by private companies.

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.

purchase-money mortgage
Mortgage given by a borrower to the seller as part of the purchase price of the property.

qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. The front-end ratio is the percentage of a borrower’s gross monthly income before taxes that would cover the cost of PITI (property, interest, taxes, and insurance). The back-end ratio is the percentage of a borrower’s gross monthly income that would cover the cost of PITI plus any other monthly debt payments, such as car or student loans.

quitclaim deed
A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.

rate lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

real estate
A portion of the earth’s surface extending downward to the center to the earth and upward into space, including all things permanently attached thereto by nature or man and all legal rights therein.

real estate agent
A person licensed to negotiate and transact the sale of real estate.

Real Estate Settlement Procedures Act (RESPA)
An act requiring the revelation of all costs involved in a real estate closing to all participants.

Realtor
A real estate agent, broker, or associate who holds an active membership in a local real estate board that is affiliated with the National Association of Realtors.

recording
The formal filing of documents affecting a property’s title.

Refinancing
The process of paying off one loan with the proceeds from a new loan, using the same property as security.

repayment plan
An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.

revolving debt
A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due.

secondary mortgage market
A market where mortgage originators may sell them, freeing up funds for continued lending and distributing mortgage funds nationally from money-rich to money poor areas.

second mortgage
A mortgage that has a lien position subordinate to the first mortgage.

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

subordinate financing
Any mortgage or other lien that has a priority lower than that of the first mortgage, or senior loan. See second mortgage.

title
A legal document showing a person’s right to or ownership of a property.

title company
A company that specializes in examining and insuring titles to real estate.

title insurance
A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.

title search
A check of the title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding.

transfer of ownership
The means by which the ownership of a property changes hands. Examples of such include the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchases, and any exchange of possession of the property under a land sales contract or any other land trust device.