Mortgage Glossary

Mortgage terms are used in the process of the mortgage loan. They help to understand the meaning of various words and phrases used in a mortgage contract.

1. Amortization:

Amortization is the payment schedule for your mortgage loan. It is also called a repayment plan or repayment period. The amortization table shows how much you will pay on your mortgage each month over the life of your loan.

2. Annual Percentage Rate (APR):

APR is the interest rate you will be charged if you borrow money from a bank, credit union, or another lender. This figure includes both the interest rate and any fees associated with borrowing the money.

3. Balloon Payment:

A balloon payment occurs when all of the amounts due under an adjustable-rate mortgage have been made but the final payment has not yet been made. At this point, the remaining balance becomes due immediately.

4. Borrower:

The borrower is the person who takes out the mortgage loan.

5. Broker:

A broker is someone who helps people buy homes by finding properties and negotiating the best deals.

6. Cash Out Refinance:

When you refinance your home loan, it means that you take out another loan to pay off your existing one. You can do this because you now have more equity in your house than what was originally owed.

7. Closing Costs:

These are costs involved in buying or selling a property that isn’t included in the purchase price. For example, they may include legal fees, transfer taxes, survey charges, etc.

8. Conforming Loan:

A conforming loan is a type of conventional loan that meets certain requirements set by Fannie Mae and Freddie Mac.

9. Credit Score:

Your credit score is a three-digit number that represents your overall creditworthiness. It’s calculated based on information found on your credit report.

10. Deed:

A deed is a document that officially transfers ownership of real estate from one party to another.

11. Down Payment:

A down payment is the amount of cash you put into a home as part of your down payment percentage.

12. Initial rate

The initial term cost (ITC) is the interest paid for the first part of the loan. Initial terms between 2, 3, and 5 years are far more common than longer terms.

13. Interest Only:

With an interest-only loan, you make fixed monthly payments that cover only the interest portion of your debt. The principle remains outstanding throughout the term of the loan.

14. Lender:

A lender provides financing for a buyer. There are two types of lenders: government agencies and private companies.

15. Monthly Installment Plan (MIP)

Monthly Instalment Plan is a flexible way to repay your mortgage loan. Instead of making a large lump sum payment monthly, you make smaller payments until the entire principal has been repaid.

16. Mortgagor:

The mortgage is the person who signs the mortgage contract.

17. Origination Fee:

This fee covers the cost of processing your application through our loan origination department.

18. Prepayment Privilege:

You’ll save money if you decide to prepay your mortgage before its maturity date. However, there are penalties for early payoff.

19. Principal & Interest:

Principal & Interest refers to the total amount of money borrowed over time. That is the principal plus the interest.

20. Reverse Mortgage:

A reverse mortgage allows homeowners age 62 or older to convert some or all of their home equity into cash.

21. Seller Financing:

Seller financing is when a seller agrees to provide a buyer with a loan to help them close on a home. This is different from traditional bank loans, which require buyers to qualify first.

22. Short Sale:

A short sale is a process whereby a homeowner sells his/her home for less than what is owed on the mortgage.

23. Title Company:

Title companies are responsible for ensuring that the title to a property is clear of any liens or encumbrances. They also ensure that the paperwork filed with the county clerk is accurate.

24. Trustee:

Trustees manage properties owned by trusts. They collect rent, oversee repairs, and handle other administrative tasks.

25. VA Loan:

VA Loans are made available to eligible veterans by the U.S. Department of Veterans Affairs (VA). Eligibility requirements vary depending on whether you’re buying or refinancing.

25. Valuation Services:

A valuation service determines the fair market value of a property.

26. Valuation:

When we talk about valuation, we mean how much your house is worth. We use this figure to determine your eligibility for a loan and the size of your down payment.

27. Equity:

Equity refers to the difference between the current market value of your home and the total amount you owe on it.

28. Subprime Loan:

A subprime loan is a type of nonconforming loan that doesn’t meet traditional lending standards.

29 Closing date:

Closing means the day you sign the final papers to complete the purchase of your new home. It’s usually within 30 days after you’ve signed the sales agreement.

 30 Credit report:

Your credit report contains information about your financial history. You can get one free copy per year at 

 31. FHA Loan:

FHA loans are insured by the Federal Housing Administration (FHA) and backed by the federal

32. Cumulative interest:

Cumulative interest is an additional charge added to the monthly payments of a mortgage if the borrower pays off part of the balance in advance.

34. Loan Officer:

Loan officers work for banks and lenders. They review applications, make recommendations, and approve or deny loans.

36. Mortgage Broker:

A mortgage broker helps people find mortgages. He/she may not actually originate the loan, but he/she will be paid a commission based on the rate and points associated with the loan.

37. Points:

Points refer to fees charged by a lender to cover costs related to closing a loan. The more points you pay, the lower your interest rate will be.

38. Prepayment Penalty:

If you pay off your mortgage ahead of schedule, you could face a prepayment penalty. This fee is typically calculated as a percentage of the remaining principal balance.

39. Reverse Mortgages:

Reverse mortgages allow homeowners age 62 and older to tap into their home’s equity without selling them.

40. Refinance:

Refinancing involves taking out another loan to repay the original one. When you refinance, you’ll have to pay closing costs again.

41. Settlement Agent:

A settlement agent is someone who handles all the details involved in transferring ownership from seller to buyer.

42. Seller Financed Property:

A seller-financed property is one where the seller provides financing for the entire cost of the home.

43. Underwriting:

Underwriting is the process of determining whether you qualify for a particular loan. If you do, a mortgage banker will decide what kind of loan best suits your needs.

44. Interest rate:

A measure of the cost of borrowing money. Interest rates can vary depending on the type of loan, length, and whether the loan is fixed or adjustable.

45. Adjustable Rate Mortgage (ARM):

An ARM has two different interest rates. One is set when you take out the loan; the other changes periodically during the life of the loan.

46. Fixed Rate Mortgage (FRM):

An FRM has only one interest rate throughout the term of the loan.

47. Amortization Schedule:

Amortization schedules show how much of each payment goes toward paying down the principal and how much goes toward interest.

47. Conventional Loan:

Conventional loans are those that don’t require government backing. These types of loans are available through private lending institutions.

48. Government Guarantee:

Government guarantees are provided by the U.S. Department of Housing and Urban Development (HUD). HUD insures the lender against loss resulting from borrowers’ defaulting on their loans.

49. Mortgage Insurance:

Mortgage insurance protects lenders against losses caused by defaults. It’s required for most conventional loans.

50. Fannie Mae:

Fannie Mae is the Federal National Mortgage Association. It buys mortgages from lenders and packages them together into securities that it sells to investors.

51. Freddie Mac:

Freddie Mac is the Federal Home Loan Mortgage Corporation. It does the same thing as Fannie Mae, except its focus is on providing housing finance.

52. Maturity:

The date at which a loan becomes fully repaid.

53. Credit score:

A credit score is the rate of an individual’s credit .this used to predict individual credit history and future behavior.

54. Debt-to-income ratio

Your DTI compares how much you owe monthly to how much you earn monthly. It’s the percentage of your total monthly expenses that go towards paying off debts.

55. Default:

When you fail to pay your mortgage on a given period of time is defaulted.

56. Finance charge: 

There are various charges above the principal (or interest), called finance charges. You must pay interest and repay the principal regularly during the contract term.

57. Index:

A financial index is a measurement that determines how much an interest rate will increase or decrease during an adjustment cycle.

58.Loan-to-value (LTV):

Loan-to-valuation (LTV) ratio compares your mortgage’s total cost with the house’s estimated market price.

59 .Principal payment:

You pay a certain percentage of your monthly mortgage payments toward reducing the principal balance of your home loan. 

60. Secured loans:

A mortgage is a type of loan where the borrower gives the bank a lien on their house or other real estates as security for repayment.

61. Unsecured loan:

A personal loan or an unsecured loan that isn’t secured by collateral.

62. Term:

The mortgage term is the length of time it takes to repay a loan. The length of time determines the payment amount, the frequency of payments, and the total interest paid over the loan’s lifetime.

64. Initial rate

The initial term cost (ITC) is the interest paid for the first part of the loan. Initial terms between 2, 3, and 5 years are far more common than longer terms.

65. Negative Equity:

Negative equity happens when the value of your home is less than the amount you owe on it. If this is the case, you might be able to sell your home at a loss and still come out ahead financially.

66. Mortgage Insurance Premiums (MIP):

MIP is an insurance premium required by most lenders to protect them against losses caused by borrowers who default on their loans.

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