A
Adjustable Rate Mortgage loan (ARM)
A type of alternative mortgage instrument in which the interest rate adjusts periodically according to a predetermined index and margin, this adjustment results in the payment either increasing or decreasing.
In some situations, the adjustment is made to the outstanding principal.

Amortization
Repayment of a debt in equal installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Appraisal
A report by a qualified person setting forth an opinion or estimate of value. Also, the process by which this estimate is obtained.

Appraised Value
An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., to the property and surroundings.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor from liability.

B

Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principle sum known as a "Balloon" is due at maturity.

Bi-weekly mortgage
A mortgage with payments due every two weeks totaling 26 payments a year.

Buydown
A payment to the lender to reduce the interest rate on a mortgage.

C

Call provision
A clause in the mortgage or deed of trust giving the mortgagee or beneficiary the right to accelerate payment of he mortgage debt in full on a certain date or on the happening of specified conditions.

Cap
The maximum increase the an Adjustable Rate Mortgage (ARM) can change, either at each adjustment or during the life of the mortgage. Example: If the original loan was made at 10% with a 5% cap, the interest on the loan may not exceed 15% regardless of market conditions.

Certificate of eligibility
A document used by the VA to certify a veteran’s eligibility for a VA loan.

Certificate of reasonable value (CRV)
A document issued by the VA establishing maximum value and loan amount for a VA-guaranteed mortgage.

Certified Mortgage Banker (CMB)
A professional designation of the mortgage banking industry.

Commitment
A written promise to make or insure a loan for a specified amount and on specified items.

Comparables Properties
used as comparisons to determine the value of a specified property.

Conventional Mortgage
A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA), but may require private mortgage insurance.

Convertible Mortgage
An adjustable rate mortgage where the mortgagor can convert the mortgage to a fixed rate mortgage during a predetermined time period.

Credit report
A report to a prospective lender on the credit standing of prospective borrower or tenant. Used to help determine creditworthiness.

D

Deed
A written legal document which purports to transfer ownership of land from one party to another.

Deed in lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Deposit
A sum of money given to bind a sale of real estate, or a sum of money given to assure payment, or an advance of funds in the processing of a loan. Also known as earnest money.

Discount
The difference between face value of an installment note and mortgage or deed of trust, and the present cash value.

Down payment
Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

E

Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

Encroachment Generally
construction onto the property of another, as of a wall, fence, building, etc.

Encumbrance
A claim, lien, charge, or liability attached to and binding real property.

Equal Credit Opportunity Act (ECOA) ECOA is 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, receipt of income from public assistance programs or reliance on any consumer protection law. Also known as Regulation B.

Equity
The difference between the market value of he real property and any liens on the property.

Escrow
Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.

F

Federal Housing Administration (FHA)
A federal Agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.

Freddie Mac (FHLMC) Federal Home Loan Mortgage Corporation.
A federal Agency purchasing first mortgages, both conventional and federally insured, form members of the Federal Reserve System, and the Federal Home Loan Bank System.

G

Ginnie Mac (GNMA) Government National Mortgage Association.
A federal association working with FHA which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

H

I

Index Rate
An index used to adjust the interest rate of an adjustable mortgage loan.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.

J

K

L

Late Charge
An additional charge a borrower is required to pay as penalty for failure to pay a regular installment when due.

Lien
An encumbrance against property for money, either voluntary or involuntary.

Loan to Value (LTV)
The relationship between the amount of a mortgage loan and the appraised value of the security expressed as a percentage of the appraised value.

M

Margin
The number of percentage points the lender adds to the Index rate to calculate the ARM interest rate at each adjustment.

Market Value
The highest price that a buyer, willing but no compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Maturity
The termination or due date of a note, time, draft, acceptance, bill of exchange, or bond. The date a time instrument or indebtedness becomes due and payable.

Mortgage
To Hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property.

Mortgage banker
A firm or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers. Mortgage bankers need to borrow the funds they lend out.

Mortgage banking
The packaging or mortgage loans secured by real property to be sold to a permanent investor with servicing retained for the life of the loan for a fee. The origination, sale, and servicing of mortgage loans by a firm or individual. The investor-correspondent system is the foundation of the mortgage banking industry.

Mortgagee
The party lending the money and receiving the mortgage.

Mortgage insurance
The function of mortgage insurance (whether government or private) is to insure a mortgage lender against loss caused by a mortgagor’s default. This insurance may cover a percentage of or virtually all of the mortgage loan depending on the type of mortgage insurance.

Mortgage insurance premium (MIP)
The consideration paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance (PIM) company. On and FHA loan, the payment is ½ of 1 percent annually on the declining balance of the mortgage.

Mortgagor
The party who borrows the money and gives the mortgage.

N

Net worth
The value of all assets, including cash, less total liabilities. It is often used as an underwriting guideline to indicate an individual’s creditworthiness and financial strength.

Note
A written promise to repay a certain sum of money on specified terms.

O

Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually as the assets of the mortgage.

Origination Fee
A fee or charge made by a lender for making a real estate loan. Usually a percentage of the amount loaned.

P

PITI (principal, interest, taxes, and insurance)
The principal and interest payment on most loans is fixed for the term of he loan; the tax and insurance portion may be adjusted to reflect changes in taxes or insurance costs.

Principal
Amount of debt, not including interest. The face value of a note, mortgage, etc.

Principal balance
The outstanding balance of a mortgage, exclusive of interest and any other charges.

PMI
Private Mortgage Insurance Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of higher percentage of the property value.

Points
A point is equal to one percent of the loan.

Prepayment Penalty
A fee charged to a mortgagor who pays off the principal balance on a loan before it is due.

Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.

Purchase Agreement
An unconditional sales contract that defines the terms and conditions under which real property is conveyed.

Q

Quit claim deed
A deed that transfers (with no warranty) only such interest, title, or right a grantor may have at the time the conveyance is executed.

R

Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.

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

Recording
The noting in the registrar’s office of the details of a property executed legal document, such as a deed, mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Refinance
The repayment of a debt from the proceeds of a new loan using the same property as security.

Reissue Rate
A charge for a title insurance policy if previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

Recession of Contract
Annulling a contract and placing the parties to it in a position as if there had not been a contract.

RESPA (Real Estate Settlement Procedures Act)
A federal statute requiring disclosure of certain costs in the sale of residential improved property which is to be financed by a federally insured lender.

S

Secondary Mortgage
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other mortgagees.

Securities and Exchange Commission (SEC)
The federal agency which regulates securities and the securities business. It is involved in real estate and mortgage lending when MBS are issued.

Security
Real or personal property pledged by a borrower, as additional protection for the lender’s interest.

Settlement Statement
A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

T

Tax lien
A claim against property for the amount of its due and unpaid taxes.

Term
The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

Title
Often used interchangeably with the work ownership. It indicates the accumulation of all rights in property, the owner and others.

Title Insurance
An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title.

U

Underwriting The analysis and matching of risk to an appropriate rate and term. The process of deciding whether to make a mortgage loan.

V

W

X

Y

Z