Glossary of Terms
Glossary of Mortgage Terms
Below is a mortgage glossary of terms. There may be words listed that no longer apply in todays market. Please call us if you have any questions.
A
ACTUAL CASH VALUE
An amount equal to the replacement value of damaged property minus depreciation.
ADJUSTABLE RATE MORTGAGE (ARM)
Also, known as a variable rate loan, an ARM usually offers a lower initial rate than a fixed rate loan. The interest rate can change at a specified time, known as an adjustment period, based on a published index that tracks changes in the current finance market. Indexes used for ARMs include the LIBOR index and the Treasury index. ARMs also have caps or a maximum and minimum that the interest rate can change at each adjustment period.
ADJUSTMENT PERIOD
The time between interest rate adjustments for an ARM. There is usually an initial adjustment period, beginning from the start date of the loan and varying from 1 to 10 years. After the first adjustment period, adjustment periods are usually 12 months, which means that the interest rate can change every year.
AMORTIZE
Paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.
AMORTIZATION SCHEDULE
Provided by mortgage lenders, the schedule shows how, over the term of your mortgage, the principal portion of the mortgage payment increases and the interest portion of the mortgage payment decreases.
ANNUAL PERCENTAGE RATE (APR)
How much a loan costs annually. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay.
APPRAISAL
A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties.
APPRECIATION
An increase in the market value of a home due to changing market conditions and/or home improvements.
ASSETS
Everything of value an individual owns.
ASSUMPTION
A home buyer’s agreement to take on the primary responsibility for paying an existing mortgage from a home seller.
b
BALLOON MORTGAGE
A mortgage loan with initially low-interest payments, but that requires one large payment due upon maturity (for example, at the end of seven years).
BUY DOWN MORTGAGE
A mortgage loan in which one party pays an initial lump sum to reduce the borrower’s monthly payments.
c
CAPACITY
Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you’ve paid for your housing costs, debts and other obligations.
CLOSING (CLOSING DATE)
The completion of the real estate transaction between buyer and seller. The buyer signs the mortgage documents and the closing costs are paid. Also, known as the settlement date.
CLOSING AGENT
A person who coordinates closing-related activities, such as recording the closing documents and disbursing funds.
CLOSING COSTS
The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed and other costs. Ask your lender for a complete list of closing cost items.
COLLATERAL
Property which is used as security for a debt. In the case of a mortgage, the collateral would be the house and property.
CONDOMINIUM
A unit in a multi-unit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas, but does not own the common elements such as the exterior walls, floors and ceilings or the structural systems outside of the unit; these are owned by the condominium association.
CREDIT REPORT
A document used by the credit industry to examine your use of credit. It provides information on money that you’ve borrowed from credit institutions and your payment history.
CREDIT SCORE
A computer-generated number that summarizes your credit profile and predicts the likelihood that you’ll repay future debts.
CREDITWORTHY
Your ability to qualify for credit and repay debts.
d
DEED
A legal document under which ownership of a property is conveyed.
DOWN PAYMENT
A portion of the price of a home, usually between 3-20%, not borrowed and paid at closing