Mortgage Glossary
Read this simple glossary for definitions of common mortgage terminology.
A-F
A mortgage loan with an interest rate that can change periodically based on changing market conditions.
A set agreement that determines the payment schedule required to pay off a mortgage loan. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the full term of the loan. Amortization terms are generally set in five-year increments, from ten to forty years.
A standardized method of determining the cost of money borrowed, stated as a yearly percentage rate. The annual percentage rate includes items such as interest, mortgage insurance, points and credit costs.
A formal report by a licensed appraiser that states the current fair market value of a specific property. Appraisals are considered unbiased estimates and typically compare similar homes within a given area in order to substantiate the value of the property.
A home mortgage that requires the remaining balance to be paid in full at the end of a preset term. A five-year balloon mortgage might be amortized over a thirty-year period, but the remaining balance is due, in full, at the end of five years.
A short-term loan used to access equity from one property in order to make a down payment on another property. These are designed to be short-term and paid off when the original property sells.
A mortgage that is refinanced in order to take equity out of a home in the form of cash. The new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%, putting the additional money in your pocket.
The governing authority for creditors including mortgages, credit cards and student loans. The CFPB was created as part of the original Dodd-Frank Wall Street Reform ACT.
One-time expenses involved during the process of buying and selling a home, or obtaining a new mortgage by refinancing. Closing costs often include property taxes, escrow payments, title insurance and an origination fee.
A final settlement document provided to the borrower three days prior to the scheduled closing date. This document restates the final terms of the loan including the down payment, total fees, monthly payment and interest charges.
A conventional conforming loan is a Fannie Mae or Freddie Mac loan that is equal to or less than the maximum allowable loan limits established by Fannie Mae and Freddie Mac. These limits are changed annually and may differ by state.
G-Z
When the down payment and closing costs for a home are given to the borrower instead of the funds coming from their own accounts. Usually such gifts can only come from family members or foundations established to help new homeowners.
A statement from a lender estimating closing costs for a specific mortgage transaction. This estimate is provided to the loan applicants within three business days after receipt of a mortgage application by the lender or broker.
The positive difference between the current value of a property and the amount financed (owed) on the property’s mortgage.
An open line of credit secured by the equity in your home. A HELOC operates similar to a credit card in that a borrower can access funds only when they need. The credit line uses your property as collateral.
A loan that is secured by the equity in your home and limited to a lump-sum payout. A home equity loan will have separate terms from your mortgage, and will be established with its own rate and payment schedule.
An insurance policy that covers not just hazard items, but also other things such as liability or personal property.
An adjustable-rate mortgage that allows borrowers to pay only the interest for a specified period of time.
The lending term used to measure and determine the cost of borrowing money.
A mortgage with a loan amount that exceeds current conforming loan limits and guidelines set by Fannie Mae or Freddie Mac.
An option where a buyer leases a home until the buyer has saved up enough money for a down payment to qualify for a conventional mortgage; also referred to as rent-to-own.
A legal claim or prior interest on the property about to be purchased.
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