Mortgage Glossary

Question 1

Abstract of title

Answer 1

A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the
period from the original source of title (often the original land grant from the United States government to an individual)
to the present time and summarizes all subsequent documents that have been recorded against that tract.

Question 2

Acceptance

Answer 2

A buyer’s or seller’s agreement to enter a contract and be bound by the terms of the offer.

Question 3

Account termination fee

Answer 3

A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying
down to a zero balance does not count as termination. See also: prepayment penalty.

Question 4

Additional principal payment

Answer 4

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Question 5

Adjustable-rate Mortgage (ARM)

Answer 5

a mortgage in which your interest rate and monthly payments may change periodically during the life of the loan based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called Variable Rate Mortgage.

Question 6

Adjustment cap

Answer 6

A limit on how much a variable interest rate can increase or decrease in a single adjustment period

Question 7

Adjustment date

Answer 7

the date on which the interest rate changes for an Adjustable-Rate Mortgage (ARM)

Question 8

Adjustment period

Answer 8

The period of time between adjustments for an Adjustable-Rate Mortgage (ARM)

Question 9

Affordability analysis

Answer 9

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs. See also: Prequalification

Question 10

Amortization

Answer 10

the gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal

Question 11

Amortization table or schedule

Answer 11

a timetable/schedule that gives you a breakdown of your monthly payments into principal interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term

Question 12

Amortization term

Answer 12

the amount of time required to amortize (pay off) the loan, expressed in months. For example, for a 15 yr fixed-rate mortgage, the amortization term is 180 months.

Question 13

Annual adjustment cap

Answer 13

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Question 14

Annual percentage rate (APR)

Answer 14

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discount points, and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions

Question 15

Application fees

Answer 15

nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as a credit profile or a property appraisal

Question 16

Appraisal or appraised value

Answer 16

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Question 17

Appraisal contingency

Answer 17

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price

Question 18

Appreciation

Answer 18

An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity line of credit

Question 19

Approved term (after approval)

Answer 19

The number of months that will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: term

Question 20

Approved term (before approval)

Answer 20

The number of months that will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: term

Question 21

Assessed value

Answer 21

the value of a property established by a public tax assessor. The assessed value is used to determine property taxes.

Question 22

Assignment

Answer 22

the method of transferring a right or contract, such as the terms of the loan, from one person to another

Question 23

Assumable loan

Answer 23

A loan that may be transferred to someone else while maintaining the same terms. For example, if you have an assumable loan (not all loans are assumable) and you sell your home, you may be able to transfer that loan to the new owner with no change in the interest rate and repayment schedule, though you may need to pay a fee in order to do so.

Question 24

Balance sheet

Answer 24

A dated financial statement (in table form) that shows your assets, liabilities and net worth

Question 25

Balloon loan

Answer 25

A loan that provides you with lower-than-usual monthly payments for a set period of time followed by a payment larger
than usual at the end of your loan repayment period. While a balloon loan may lower your monthly payments it can also
mean you make higher interest payments over the life of the loan.

Question 26

Base rate

Answer 26

An interest rate that is used as a benchmark, or index for pricing variable-rate loans such as an adjustable-rate mortgages, auto loans and credit cards

Question 27

Bond

Answer 27

an interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust

Question 28

Basis point

Answer 28

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1,000

Question 29

Break even point

Answer 29

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration. In other words, if $3,600 is paid toward discount points to reduce the interest rate and the reduced rate would decrease the monthly mortgage payment by $100, it would take 3 years to break even on the choice to pay the discount point amount.

Question 30

Bridge loan

Answer 30

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a bridge loan might be taken out by a borrower and secured by that borrower’s present home so that the closing on a new house can take place before the present home is sold.

Question 31

Broker

Answer 31

A third party who arranges funding or negotiates a contract between parties, but does not lend the money

Question 32

Broker fees

Answer 32

Fees by a real estate broker or a mortgage broker for providing assistance in a real estate transaction

Question 33

Buydown

Answer 33

The lump-sum prepayment of all or a portion of your mortgage interest by a lender or homebuilder in order to lower your monthly mortgage payment, typically for a period of 1-3 years. See also: term

Question 34

Call option

Answer 34

A provision in a loan that gives the lender the right to accelerate the debt and require full payment of the loan immediately at the end of a specific period for a specified reason

Question 35

Cash available for closing

Answer 35

Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower’s cash available for closing does not include cash reserves or money from those specified sources.

Question 36

Cash to close

Answer 36

the amount a homebuyer needs in cash at the closing of the loan. This typically, this includes down payment and closing costs.

Question 37

Cash-out refinance

Answer 37

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement or any other purpose.

Question 38

Ceiling rate

Answer 38

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage

Question 39

Certificate of eligibility

Answer 39

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veteran Affairs (VA) loan