Adjustable-rate mortgage (ARM)
A mortgage with an interest rate that can change after an initial period according to the note terms.
Mortgage reference
Mortgage Glossary
More than 100 plain-English definitions covering mortgages, homebuying, credit, closing, and servicing.
A
Amortization
The scheduled repayment of loan principal and interest over time.
Annual percentage rate (APR)
A disclosure measure that expresses the rate plus certain finance charges as an annualized cost.
Application
The information submitted for a lender to evaluate a requested mortgage transaction.
Appraisal
An independent opinion of property value prepared for a specified purpose.
Appraisal contingency
A contract provision addressing what may happen if the property does not appraise as expected.
Assets
Funds or property with value that may be considered for closing, reserves, or financial strength.
B
Balloon mortgage
A loan requiring a large remaining balance payment at a specified time.
Basis point
One one-hundredth of one percentage point; 100 basis points equal 1%.
Biweekly payment
A payment made every two weeks, often resulting in 26 half-payments per year.
Borrower
A person or entity obligated under a loan.
Broker
An intermediary who may arrange financing between a borrower and lenders.
Buydown
An arrangement that reduces the borrower’s payment rate for a period or permanently through upfront funds or pricing.
C
Capacity
The borrower’s demonstrated ability to repay based on qualifying income and obligations.
Cash to close
The final amount the borrower must provide to complete the transaction.
Cash-out refinance
A refinance producing proceeds beyond the amount needed to pay existing liens and transaction costs.
Clear to close
A status indicating that major underwriting conditions are satisfied, subject to final closing requirements.
Closing
The process of signing, funding, and completing a real-estate finance transaction.
Closing Disclosure
A standardized form showing final or near-final mortgage terms and closing costs.
Closing costs
Loan, settlement, title, government, prepaid, and other charges associated with closing.
Co-borrower
A person jointly obligated on the loan.
Collateral
Property pledged to secure repayment of a debt.
Comparable sale
A property sale used as market evidence in valuation.
Conforming loan
A mortgage meeting applicable secondary-market size and eligibility standards.
Contingency
A contract condition that creates rights or obligations if specified events occur.
Conventional loan
A mortgage not insured or guaranteed by a federal housing agency.
Credit report
A record of credit accounts, payment history, inquiries, and related information.
Credit score
A numerical model-based assessment derived from credit-report information.
D
Debt-to-income ratio (DTI)
Qualifying monthly debt obligations divided by qualifying gross monthly income.
Deed
A legal instrument used to transfer real-property ownership.
Default
Failure to meet a material loan obligation.
Delinquency
A payment or obligation that is past due.
Discount point
Upfront charge generally paid to obtain lower mortgage pricing.
Down payment
The portion of the purchase price not financed by the mortgage.
E
Earnest money
A buyer deposit governed by the purchase contract and credited in the final settlement if the transaction closes.
Equity
The estimated property value minus debt secured by the property.
Escrow account
An account used by a servicer to collect and pay specified property charges such as taxes and insurance.
Escrow analysis
A periodic review of projected escrow collections and disbursements.
Escrow shortage
A projected escrow deficiency that may require higher payments or a lump-sum deposit.
F
FHA loan
A mortgage insured by the Federal Housing Administration.
Fannie Mae
A government-sponsored enterprise that supports the secondary mortgage market.
Federal Housing Administration (FHA)
A federal agency that insures qualifying mortgages made by approved lenders.
Finance charge
Certain costs of consumer credit included in required disclosures.
First mortgage
The lien generally holding first priority against the property.
Fixed-rate mortgage
A mortgage whose note interest rate remains constant for the agreed term.
Float
Allowing mortgage pricing to remain unlocked and subject to market changes.
Float-down
A lock feature that may permit improved pricing under specified conditions.
Flood certification
A determination of whether a property lies in a designated flood-hazard area.
Flood insurance
Coverage for qualifying flood losses, often separate from standard homeowners insurance.
Foreclosure
A legal process used to enforce a secured lien after default.
Freddie Mac
A government-sponsored enterprise that supports the secondary mortgage market.
Funding fee
A program charge, such as the VA funding fee, that helps support a guaranty program.
G
Gift funds
Eligible funds given to a borrower under applicable documentation and program rules.
Good-faith deposit
A term sometimes used for earnest money or a lender deposit, depending on context.
Gross monthly income
Income before taxes and deductions, as calculated under applicable qualifying rules.
H
Hazard insurance
Property insurance coverage required by lenders for specified risks.
Home inspection
An independent evaluation of accessible property systems and components for the buyer.
Home-equity line of credit (HELOC)
A revolving credit line secured by home equity.
Home-equity loan
A closed-end loan secured by home equity, generally in addition to the first mortgage.
Homeowners association (HOA)
An organization governing a common-interest community and collecting dues or assessments.
Homeowners insurance
Insurance covering specified property and liability risks under the policy terms.
Housing expense ratio
Proposed qualifying housing expense divided by qualifying gross monthly income.
I
Impound account
Another term commonly used for a mortgage escrow account.
Index
A published benchmark used in calculating adjustable mortgage rates.
Interest
The cost charged for use of borrowed money.
Interest rate
The percentage rate used to calculate interest on the outstanding principal.
Interest-only payment
A payment that covers interest without scheduled principal reduction during the interest-only period.
Investment property
Real estate owned primarily for income or investment rather than principal occupancy.
J
Jumbo loan
A large-balance mortgage outside applicable conforming loan parameters.
L
Late fee
A charge assessed when payment is not received under the note and servicing terms.
Leasehold
An interest in property based on a lease rather than ownership of the underlying land.
Lender credit
Mortgage pricing credit used to offset eligible closing costs, generally associated with a higher rate or price.
Lien
A legal claim or security interest against property.
Loan Estimate
A standardized disclosure summarizing estimated mortgage terms, payments, and closing costs.
Loan modification
An agreed change to existing loan terms, often used as a loss-mitigation option.
Loan officer
A mortgage professional who assists with application, product, and transaction processing.
Loan-to-value ratio (LTV)
Loan amount divided by the property value used for the transaction.
Lock extension
Additional time added to a rate lock, sometimes at a cost.
M
Margin
The fixed percentage added to an ARM index to determine the fully indexed rate.
Maturity date
The date by which the loan is scheduled to be paid in full.
Mortgage
A loan secured by real property or the security instrument creating the lien, depending on jurisdiction.
Mortgage insurance
Coverage protecting a lender or guarantor against specified losses.
Mortgage insurance premium (MIP)
The upfront or annual insurance charge associated with FHA financing.
Mortgage note
The borrower’s written promise to repay according to specified terms.
Mortgage servicer
The company that collects payments and administers the mortgage account.
N
Negative amortization
An increase in loan balance when scheduled payments are insufficient to cover accrued interest.
Nonconforming loan
A mortgage that does not meet one or more standard conforming requirements.
Note rate
The interest rate stated in the promissory note.
O
Origination charge
A lender or broker charge for arranging or processing the mortgage.
Owner-occupied
A property used as the borrower’s principal residence.
Owner’s title policy
Title insurance protecting the owner’s covered interest under the policy.
P
PITI
Principal, interest, taxes, and insurance.
Payment cap
A limit on payment change in certain adjustable loan structures.
Per diem interest
Daily interest charged for a partial period.
Pre-approval
A conditional lender assessment based on reviewed borrower information and assumptions.
Pre-qualification
An early estimate of potential eligibility, often based largely on stated information.
Prepaid interest
Interest collected at closing for the period before the first scheduled payment cycle.
Prepaids
Amounts paid in advance for items such as interest, insurance, or taxes.
Prepayment
Payment of principal before the scheduled due date.
Prepayment penalty
A charge that may apply when a loan is paid early under specified terms.
Primary residence
The home a borrower principally occupies.
Principal
The outstanding amount borrowed, excluding interest and charges.
Private mortgage insurance (PMI)
Mortgage insurance provided by a private insurer, commonly used with conventional low-equity loans.
Property tax
A tax imposed on real property by a governmental authority.
Purchase agreement
The contract establishing terms for the sale of property.
R
Rate cap
A limit on how much an adjustable interest rate can change.
Rate lock
An agreement protecting specified mortgage pricing for a defined period and conditions.
Recast
Recalculation of payments after a qualifying principal reduction without replacing the loan.
Recording fee
A charge for recording documents in public records.
Refinance
Replacement of an existing loan with a new loan.
Reserves
Eligible assets remaining after closing, often measured in months of housing payment.
Right of rescission
A limited cancellation right applicable to certain credit transactions secured by a principal dwelling.
S
Second home
A qualifying residence occupied by the borrower but not used as the primary residence.
Second mortgage
A loan secured by a lien subordinate to the first mortgage.
Seller credit
A contractually agreed seller contribution toward eligible buyer costs.
Servicing transfer
Movement of mortgage servicing responsibilities from one company to another.
Settlement agent
The party coordinating closing, funds, and documents under local practice.
Short sale
A sale in which lien payoffs exceed available proceeds and creditor approval is required.
Survey
A professional depiction or measurement of property boundaries and related features.
T
Tax lien
A governmental claim against property for unpaid taxes.
Term
The scheduled duration of the loan.
Title
The legal ownership interest in property.
Title commitment
A preliminary title-insurance document describing proposed coverage, requirements, and exceptions.
Title insurance
Insurance against covered title defects under a lender or owner policy.
Title search
A review of records for ownership, liens, and other matters affecting title.
Total interest
The sum of interest paid over the measured loan period under stated assumptions.
Truth in Lending Act (TILA)
A federal law requiring specified consumer-credit disclosures and protections.
U
USDA loan
A mortgage supported by an eligible U.S. Department of Agriculture housing program.
Underwriting
The process of evaluating borrower, transaction, and collateral risk against applicable requirements.
V
VA loan
A mortgage guaranteed in part by the U.S. Department of Veterans Affairs for eligible borrowers.
Verification of employment
Confirmation of a borrower’s employment status and sometimes compensation.
W
Wire fraud
Theft using fraudulent electronic payment instructions, a significant real-estate closing risk.
Y
Yield spread
A pricing difference associated with mortgage rate and market value, used in varying industry contexts.