Mortgage Glossary

Buying a new home is an exciting time, but making sense of all the terminology can leave even seasoned homebuyers feeling a little confused. To get the best mortgage deal, you need to be able to speak the language of mortgage lenders. Here’s a quick overview of some common mortgage terms to help you get started. Italicized phrases are defined in this mortgage glossary.

A ~ Mortgage Glossary

Abstract of Title

A document that shows you the history of ownership for the property.

Acceleration Clause

A provision that lets the lender demand payment in full if you miss a payment or default on the loan.

Accrued Interest

Interest on the loan that hasn’t been paid yet.

Additional Principal Payment

Extra money, over and above your scheduled payment, paid during your loan period, that’s applied to the principal of your loan, reducing the overall amount you owe.

Adjustable-Rate Mortgage (ARM)

When your mortgage interest rate varies in accordance with certain market indices. Typically, the rate starts low and is capped at a certain point.

Affordability Analysis

An analysis of various factors — including your income, existing debt, location of the property, type of mortgage, and projected closing costs — that helps lenders determine if you can afford a particular house.

Amortization

Your monthly payment plan.

Amortization Term

The length of time, expressed in months, that it takes you to pay off your mortgage.

Appraisal

The estimated value of the house, as determined by a third-party professional who has inspected the property; this ensures that you aren’t paying more for a house than it’s worth.

Assumable Mortgage

A type of contract that allows new buyers to take over the existing mortgage, provided they meet the lender’s standards of creditworthiness.

B ~ Mortgage Glossary

Back-End Ratio

Compares all of your existing debt and liabilities to your gross income; also known as your debt ratio.

Balloon Mortgage

A mortgage that has equal monthly payments until the end of the term, at which time you pay a larger lump sum.

Buydown

A large up-front payment during the first few years of a mortgage, which reduces the amount of subsequent monthly payments.

C ~ Mortgage Glossary

Change Frequency

The number of times your monthly payment or interest rate changes in an ARM.

Closing

The big day; the meeting at which you finalize the sale of your new home.

Closing Costs

Additional costs, on top of the home’s purchase price, that cover expenses such as appraisal fees, discount points, credit report fees, title fees, attorney fees and recording fees.

Closing Disclosure (CD)

An integrated disclosure document that replaces the HUD-1 settlement statement and the final Truth in Lending disclosure. The CD, delivered three business days before your closing, details the terms of your mortgage loan.

Commitment Letter

A letter from the lender, confirming the terms of your loan.

Consummation

The date in which you assume the debt burden of your new mortgage loan. While it’s often the same date as your closing, it doesn’t have to be.

Conventional Mortgage

A mortgage that conforms to certain national standards and has a fixed interest rate, so that your payments remain the same throughout the life of the loan.

Convertible ARM

An adjustable-rate mortgage with the option to convert to a fixed-rate mortgage.

D ~ Mortgage Glossary

Date of Possession

The date you get to move into your new home; it’s usually the same as the closing date, but can be different.

Debt Ratio

See Back-End Ratio

Deed

See Title

Delinquency

A late payment.

Discount Points

Voluntary, tax-deductible payment at closing to lower your interest rate; the cost of one point reduces your interest rate by a percentage (e.g., 0.25% or 1%).

Down Payment

A portion of the home’s cost, paid up front.

Default

Non-compliance with the terms of your mortgage, including not making your monthly payments.

E ~ Mortgage Glossary

Earnest Money

An amount of money you pay when you make an offer on a home to show the buyer that you’re serious about moving forward.

Easement

The legal right of someone else to use your property, for example in the case of a shared driveway.

Equity

The difference between your home’s fair market value and what you still owe on your mortgage.

Escrow Payment

The portion of your monthly payment that your lender sets aside to pay for things such as insurance and property taxes.

F ~ Mortgage Glossary

Fair Market Value

What your home is worth in the current market.

Fixed Installment

Your monthly mortgage payment, including principal and interest.

Fixed-Rate Mortgage

A mortgage in which your interest rate and monthly payments stay the same throughout the duration of the loan.

Foreclosure

When your lender takes possession of your home after you’ve defaulted on your mortgage; also, a home that has been foreclosed upon.

G ~ Mortgage Glossary

Good Faith Estimate (GFE)

A list of anticipated loan and closing costs and loan terms given to you by your lender after you’ve applied for a mortgage. The Lending Estimate replaces the GFE as of October 2015.

Graduated Payment Mortgage

A mortgage in which your monthly payments gradually increase over time, before reaching a fixed point and staying the same for the rest of the loan period.

Guarantee Mortgage

A mortgage that a third party promises to pay if the primary borrower defaults.

H ~ Mortgage Glossary

Home Inspection

A thorough inspection of a house performed by a professional; home inspectors look for problems such as water leaks, structural damage and pest infestations.

Home Price Index

A tool that provides home price statistics in specific areas, such as cities or neighborhoods.

Homeowners Insurance

An insurance policy that protects you and the lender in case the home needs to be repaired or replaced. Read your policy carefully so you know what is and isn’t covered.

Hybrid ARM

A mortgage that starts out with a fixed interest rate and payment amount, but converts to an adjustable-rate mortgage after a predetermined number of years.

I ~ Mortgage Glossary

Installment

Your regular monthly mortgage payment.

Interest Rate Ceiling

The highest interest rate you’ll have to pay in an ARM.

Interest Rate Floor

The lowest interest rate you’ll pay in an ARM.

L ~ Mortgage Glossary

Lending Estimate (LE)

A comprehensive, integrated disclosure document that replaces the Good Faith Estimate and the initial Truth in Lending disclosure. Delivered to you within three business days of submitting your loan application, the LE combines the information from both those documents into one.

Liabilities

Your long-term and short-term debts and financial responsibilities.

Lifetime Payments Cap

The upper and lower limits of your monthly payments during the life of your ARM.

Lifetime Rate Cap

The upper and lower limits of your monthly payments during the life of your ARM.

Loan Acceleration

A provision that allows your lender to demand the full amount of your mortgage to be repaid if you make a late payment.

Lock-In Period

A brief window of time during which your lender guarantees that you’ll get a certain interest rate; used by people who get a mortgage before they’ve found a home.

M ~ Mortgage Glossary

Maturity

The date that the balance of your mortgage is due.

Mortgage

A legal document in which you promise to repay the lender, giving the lender the right to take possession of the home if you default on the terms of your loan.

Mortgage Insurance

Not the same as homeowners insurance; this protects the lender in case you default on your mortgage. Also known as Private Mortgage Insurance (PMI).

Mortgage Points

See Discount Points and Origination Fee.

N ~ Mortgage Glossary

Net Worth

The value of all your assets, including cash and property, minus the value of all your liabilities.

Notice of Incomplete Application

A form your lender sends you when more information is needed from you to complete your mortgage application.

O ~ Mortgage Glossary

Offer

When you find the house you want to buy, you start the purchase process by making an offer to the seller. If you have been pre-approved for a mortgage, you know how much money you have access to, as well as how much house you can reasonably afford.

Origination Fee

Fees you pay your lender at closing. This can be the broker’s fee or salesman’s commission. Fees vary, but are expressed in points, where one point equals 1% of your mortgage amount.

P ~ Mortgage Glossary

PITI

The four components of your mortgage payment: Principal, Interest, Taxes and Insurance.

Pre-approval

Finding out how much money you will be able to borrow, before applying for your actual mortgage loan.

Prepayment Penalty

Some loans encourage you not to refinance too soon, instituting a financial penalty if you decide to do so. Since you pay most of the interest first when repaying a mortgage loan, your lender structures the loan so you keep paying your mortgage for a certain period.

Principal

The amount of money you borrowed toward the cost of your home. This does not include interest.

Principal Balance

The amount of money you still owe toward the cost of your home, not including interest, taxes, or other fees.

Private Mortgage Insurance (PMI)

See Mortgage Insurance.

Processing Fees

Fees your lender charges you to cover the cost of creating and processing your loan, most often paid at closing.

Property Address

The street address of the house you’re trying to buy.

R ~ Mortgage Glossary

Real Estate Settlement Procedure Act (RESPA)

A law that says lenders must tell you in advance how much your closing costs will be.

Refinancing

Taking out a new mortgage loan to pay off an existing mortgage, using the same property as security.

Right of First Refusal

A provision in a loan agreement that says that if you decide to sell the property, you must give another party the option to buy before offering it to anyone else.

S ~ Mortgage Glossary

Sales Contract

The formal agreement between you and the seller; the contract includes things such as the property address, price of the home, closing date, inspections, and more.

Second Mortgage

A loan that allows you to access the cash equity in your home; sometimes called a home equity loan.

Survey

The measurement of your property, done by a professional, showing property lines and other features of the property.

T ~ Mortgage Glossary

Terms

The interest rate on your loan and the length of time you have to pay back the full amount of your mortgage.

TILA-RESPA Integrated Disclosure (TRID) Rule

The rule that replaced the Good Faith Estimate, HUD-1 settlement statement and Truth in Lending disclosures with the Lending Estimate and the Closing Disclosure. The TRID affects mortgage applications submitted on or after October 3, 2015.

Title

The legal document that lists who owns a piece of property; also called a deed.

Title Search

Research done on a title that exposes any liens against the title or property.

Truth in Lending

A law that requires your lender to tell you in writing the terms of your loan agreement. As of October 2015, the Truth in Lending disclosures have been integrated into the Lending Estimate and the Closing Disclosure.

U ~ Mortgage Glossary

Underwriting

The analysis of your creditworthiness and the value of a property, to determine the risk involved with offering you a loan.

W ~ Mortgage Glossary

Walk-Through

One last trip through your potential new house before closing, to ensure that everything is still in the condition it was upon initial inspection and that any repairs that were promised by the seller have been made.

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Zachery Adam

Zack loves mortgage lending not only because he gets to help people, but also because it allows him the flexibility to spend quality time with his family.
 
 To meet face to face, call 828.348.1907 or email at Zachery@goprime.com. NMLS 667077 l Company NMLS ID 69551
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