Mortgage Dictionary

  • 1031 Exchange - 1031 exchange implies to the process of swapping one investment asset to another with no or little tax due at the time of exchange.
  • Adjustable Rate Mortgage (ARM) - It is the type of mortgage where the interest rate applied varies throughout the life of the mortgage/loan. 
  • Alt-A Mortgage - The type of loan where risk falls between the prime and sub prime. 
  • Amortization - Amortization refers to paying off debt in the fixed payment schedule in regular installments for a specific period of time. 
  • Annual Percentage Rate (APR) - The annual interest rate charged for borrowing or earned through an investment, expressed in percentage  representing the actual yearly cost of funds charged over the term of a loan.
  • Annual Percentage Yield (APY) - Similar to APR, APY is an annual rate of return investor earns in an year after accounting fro the effects of compounding. 
  • Appraisal - The evaluation of the property’s value done by a professional appraiser at the time of the origination of the mortgage.
  • Assumption - Assuming a loan means taking over the sellers’ mortgage and continue making payments on the same.  
  • Balloon Mortgage - The type of mortgage where borrower is required  make regular payments for a specific interval, then pay off the remaining balance within a relatively short time.
  • Biweekly Mortgage - Biweekly mortgage is the type of mortgage where the borrower makes a payment equal to half the monthly payment in every two weeks.
  • Bridge Loan - The type of short term loan which is taken out for the period of 2 weeks to 3 year pending the arrangement for long term financing.
  • Buy-Down - Buy-Down occurs when you pay an additional charge (known as a point) in exchange for a lower interest rate on your mortgage.
  • Caps - Includes the initial, subsequent and lifetime payments caps that enables you to decode the amount allows you to change the interest rate in the adjustable rate mortgage.  
  • Cash-In Refinance - Cash-In refinance basically occurs when you pay down your existing mortgage as pe the certain loan to value ratio in order to qualify for a mortgage refinance. 
  • Certificate of Reasonable Value - It is a type of a document issued by the Department of Veterans Affairs (VA) providing the maximum value and loan amount for a VA loan. 
  • Closing - “Closing” also implies “settlement” and the same happens when all the parties involved in the mortgage loan sign the necessary document. 
  • Closing Costs - It is the fees charged for mortgage services that are required to process and close your loan.
  • Conforming Loan - conforming loan is a mortgage loan that fulfills all the requirements to be eligible for purchase by investors such as Fannie Mae and Freddie Mac.
  • Conventional Mortgage - The type of loan which is not insured by any government agency. 
  • Credit Report - Credit report implies to the detailed report of individual’s credit history. 
  • Debt-to-income Ratio - It is the ratio of borrower’s ability to manage monthly payments and repay debts. 
  • Deed-in-lieu of foreclosure - It is a transaction where homeowner voluntarily transfers the property to the lender in order to satisfy loan which is in default and avoid foreclosure proceedings. 
  • Deed of Trust - an agreement between lender and a borrower meant to entitle the specific property to a neutral third party who will be serving as a trustee.
  • Deferred Interest - A payment option for the borrowers that allows them to make purchases without paying any interest. 
  • Delinquency - A situation where the borrower is late or overdue on making a payment be it for income tax, for a mortgage mortgage, automobile loan or against the credit card account.
  • Discount Rate - Discount rate is the interest rate used to discount a stream of future cash flows to their present value.
  • Down Payment - An initial amount paid at the time of purchase such as of a property. 
  • Earnest Money - It is the sum of money paid by a buyer at the time of entering a contract indicating the ability of the buyer to carry out the contract.
  • Equal Credit Opportunity Act - The acts prevents creditors from discriminating loan applicants on the basis of race, color, religion, national origin, sex, marital status, age, or because you get public assistance.
  • Escrow - The term refers to money held by the third party including the taxes, insurance and allocated funds in a mortgage transaction. 
  • Federal Funds Rate - The interest rate at which institutions like banks and credit unions lend funds reserved at federal reserves to other depository institutions overnight.
  • Federal Home Loan Mortgage Corporation - It is a government sponsored entity that buy certain type of mortgage from the banks and employs them to collaborate mortgage backed securities. 
  • FHA Loan - The type of loan which offers the most favorable terms and fewer qualification requirements for the eligible buyers. 
  • First Time Home Buyer - Buyers who has not purchased any property during three years prior to the date of purchase. 
  • Fixed Rate Mortgage - Mortgage with fixed interest rate that will not adjust for its entire loan life. 
  • Foreclosure - The process where bank or lender sells the property after borrowers fails to repay the mortgage amount. 
  • Good Faith Estimate - GFE is an estimate of payment due on the closing of mortgage loan. 
  • Graduated Payment Mortgage - The type of mortgage that starts with low monthly payments but increases over the specified time frame.
  • Hard Money Loan - An asset based loan financing where borrower receives funds secured by real property.
  • HARP Loan - Loan which enables borrowers with little or no equity to refinance into more affordable mortgages without making investing in a new or additional mortgage insurance.
  • Hazard Insurance - insurance that protects property owner against damages made due to fire, earthquakes, severe storms and other natural calamities.  
  • Home Equity - Home equity implied to the value of your home excluding the lien.
  • Home Equity Line of Credit - the type of loan where a lender agrees to lend maximum amount of loan for a specific period of time. 
  • Impound Account - An account maintained by the mortgage company to collect insurance and tax payments that are required to run your house but are not a part of mortgage.
  • Interest Only - The type of mortgage where the mortgagor is just required to pay off the interest charged on the principle amount borrowed.  
  • Islamic Mortgage - A mortgage that avoid making interest payment is prohibited by the Islamic law.
  • Jumbo Loan - A loan with high credit quality but with the amount above conventional conforming limits.
  • Lenders Credit - Credit paid by bank or mortgage company taking a higher interest rate
  • Lender Paid Mortgage Insurance - The type of insurance where borrower is allowed to pay lower monthly payments but a higher interest rate.
  • Lender Overlay - the set of rules established by individual market broker and banks are stricter than the government mortgage entities. 
  • Lien - The right to take someone’s property if the obligation is not discharged.
  • Loan Officer - Loan officer are the loan originators who work for bank and other financial institutes works to recommend individual and business loan applicants for approval.
  • Loan Origination - The process where borrower applies for the loan and lender processes the application. 
  • Loan Processor - Loan processor basically collects the file of the loan applied by the loan applicant for the loan and brings it to the bank or to the lender for approval.
  • Loan to value - The financial term used by lender to express the ratio between the loan amount and the value of property purchased 
  • Margin - Percentage added to your mortgage loan after your lender examines your index 45 to 60 days prior to a scheduled interest rate adjustment specified in your loan agreement.
  • Mortgage - A loan to finance the purchase of your loan. 
  • Mortgage Broker - Mortgage broker is the mediator between the lender and the borrowers who negotiates the loan on borrowers behalf. 
  • Mortgage Discount Points - it implies, to the one time, upfront amount paid as a closing cost that provides borrowers an access to discounted mortgage rates.  
  • Mortgage Due Date - The date till when the borrower is allowed to pay loan payment every month until the duration of the loan. 
  • Mortgagee - The Lender in the mortgage process. 
  • Mortgage Insurance - An insurance policy that provides compensation to the lenders and investors for providing the safety against the default on mortgage loan. 
  • Mortgage Lender - A financial institution that provides loan to the borrowers 
  • Mortgage Payment - Monthly cost paid again the loan 
  • Mortgage Rate - The rate of interest charged on mortgage.
  • Mortgage Rate Lock - An written agreement between borrower and lender that allows borrower to lock in the interest rate on mortgage for the specified time period at prevailing market rate.
  • Mortgage Term - Mortgage term is the length of time for which the loan lasts.  
  • Mortgagor - The person who borrowers money to purchase the real estate property.
  • Negative Amortization - An increase in the principle amount of the loan caused when your monthly payment fails to cover the interest rate. 
  • Ninja Loan - The typ[e of loan extended to borrower with no income, no job and no assets. 
  • No Closing Cost Refinance - A transaction where you refinance without paying any closing costs.
  • Note - A legal document by which the buyer transfers lender the interest rate in real estate to secure the repayment of the debt. 
  • Option Arm - A monthly adjustable-rate mortgage that allows borrowers to choose among several monthly payment options
  • Origination Fee - Fee charged by lender for processing new loan application.
  • Par Rate - Interest rate that borrowers secures as the reference point for which a mortgage lender will neither pay a rebate (yield spread premium or negative points) or require discount points for a mortgage.
  • Payment Shock - Situation where borrower dramatically increases their monthly house payment.
  • Piggyback Mortgage - Second mortgage that close at the same time as the first mortgage.
  • PITI - An acronym for mortgage payment including the sum of principle, interest, taxes and insurance. 
  • Points - A point is a fee which is equal to 1% of the total loan amount.
  • Pre- Approval/ Pre-Qualification - An evaluation done by lender to identify the borrower’s potential determining the maximum amount lender can lend the specific borrower.
  • Prepayment Penalty - A clause in mortgage contract which states that the penalty will be accessed if the mortgage is prepaid within the specific time period.
  • Prime Rate - An interest rate that most commercial banks charge to their most trusted customers. 
  • Principle - Mortgage amount borrowed from the lender. 
  • Purchase Money Mortgage - Mortgage issued to the borrower by the seller of a home as part of the purchase transaction. 
  • Qualified Mortgage - The type of loan with more stable features that you are more likely to afford. 
  • Quitclaim Deed - A legal document used to transfer interest amount in real property.
  • Refinance - The process of replacement of one debt obligation with another debt obligation under specific terms. 
  • Reverse Mortgage - The type of mortgage where homeowner can borrow money against the value of his/her home. 
  • Right of Rescission - A law that gives borrowers the ability, to cancel their loan deals in certain circumstances, within three days, no questions asked and you are free to walk away.
  • Second Mortgage - Type of mortgages taken on the property which is already mortgaged.
  • Seller Carryback - A situation where seller acts as the lender and carries a second mortgage on the subjected property.
  • Short Sale - Selling a home for the amount less than the present owner owes to the mortgage company 
  • Short Refinance - A mortgage where lender agrees to pay off your existing mortgage and replace it with new loan with a reduced balance, to help you avoid foreclosure.
  • Stated Income Mortgage - Loans that are used to fill the gap of situations which normal loan standards would not approve. 
  • Streamline Refinance - The type of refinance where an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. 
  • Subprime Mortgage - Type of loan which is provided to the individuals with poor credit history and will not able to qualify for the conventional mortgages. 
  • Teaser Rate - The interest rate charge to the consumers in the initial days of the mortgage loan. 
  • Title Insurance - The type of insurance that insures against the financial loss from the defects in title to the real property. 
  • Underwater Mortgage - When the balance of mortgage loan is higher than the fair market value of the property.
  • Underwriter - Underwriter happens when investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities.
  • VA Mortgage - Mortgage specifically designed to meet the housing needs of veterans and military member. 
  • Yield Spread Premium - The amount of rebate given to borrower for accepting higher rate of interest.
  • Zestimate - Zillow’s estimated market value of the piece of property is called Zestimate.