Mortgage Glossary

A comprehensive A-Z guide to mortgage terms and definitions. Understand the language of home loans with clear, expert explanations.

A

Acceleration Clause

A provision allowing the lender to demand full repayment

Legal

Addendum

An addition or change to a standard contract

Legal

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically

Core

Affidavit

A written statement confirmed by oath for legal purposes

Legal

Amortization

The process of paying off a loan through regular payments over time

Core

Amortization Schedule

A table showing each mortgage payment over the life of the loan

Core

Annual Cap

The maximum interest rate increase per year on an ARM

Core

Annual Percentage Rate (APR)

The total annual cost of borrowing including interest and fees

Core

Appraisal

A professional assessment of a property market value

Process

Assignment

The transfer of a mortgage from one party to another

Legal

Assumption

Taking over another person existing mortgage

Core

Automated Underwriting

Computer-based evaluation of a mortgage application

Process

B

Back-End Ratio

Total monthly debts divided by gross monthly income

Borrower

Balloon Payment

A large final payment due at the end of a loan term

Financial

Basis Points

A unit of measure for interest rates equal to 0.01 percent

Financial

Blanket Mortgage

A single mortgage covering multiple properties

Investment

Bridge Loan

A short-term loan used to bridge the gap between buying and selling

Financial

Buydown

A financing technique to reduce the mortgage interest rate

Financial

C

Cap Rate

The rate of return on a real estate investment property

Investment

Cash Reserves

Liquid assets available after closing on a mortgage

Borrower

Cash-Out Refinance

A refinance that replaces your mortgage with a larger one to access equity

Core

Certificate of Occupancy

A document certifying a building meets building codes

Property

Chain of Title

The historical record of property ownership transfers

Legal

Clear Title

Property ownership free of liens or legal disputes

Legal

Closing Costs

Fees and expenses paid at the closing of a real estate transaction

Process

Closing Disclosure

A form that provides final details about your mortgage loan

Process

Cloud on Title

An unresolved claim or issue affecting property title

Legal

Co-Signer

A person who signs a loan agreement with the primary borrower

Borrower

Combined Loan-to-Value (CLTV)

The ratio of all loans on a property to its value

Financial

Commitment Letter

A formal offer from a lender to provide a mortgage

Process

Comparables (Comps)

Similar properties used to estimate a home market value

Process

Conforming Loan

A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac

Core

Construction Loan

A short-term loan for building a new home

Core

Contingency

A condition that must be met for a real estate contract to proceed

Process

Conventional Loan

A mortgage not insured or guaranteed by a government agency

Core

Cost of Funds Index (COFI)

An index used to determine ARM rate adjustments

Financial

Covenant

A promise or agreement in a mortgage contract

Legal

Credit Report

A detailed record of an individual credit history

Borrower

Credit Score

A number representing your creditworthiness based on credit history

Borrower

Credit Utilization

The percentage of available credit currently in use

Borrower

Cross-Collateralization

Using one property as collateral for multiple loans

Investment

D

Debt Service Coverage Ratio (DSCR)

Net operating income divided by total debt service

Investment

Debt-to-Income Ratio (DTI)

The percentage of monthly income that goes toward debt payments

Borrower

Deed of Trust

A document that secures a loan using real property as collateral

Legal

Default

Failure to meet the legal obligations of a loan

Legal

Deficiency Judgment

A court order requiring payment of remaining debt after foreclosure

Legal

Delinquency

Failure to make a mortgage payment on time

Hardship

Depreciation

A decrease in property value over time

Financial

Discount Points

Fees paid to the lender at closing to reduce the interest rate

Financial

Down Payment

The initial payment made when buying a home

Core

Due-on-Sale Clause

A provision requiring full loan repayment upon property sale

Legal

E

Earnest Money

A deposit made to show serious intent to purchase a property

Process

Encumbrance

A claim or liability attached to a property

Legal

Equity

The difference between your home value and what you owe

Core

Escrow

An account held by a third party for taxes and insurance payments

Process

F

Fannie Mae

A government-sponsored enterprise that buys and guarantees mortgages

Core

Federal Housing Administration (FHA)

A government agency that insures mortgage loans

Core

FHA Loan

A mortgage insured by the Federal Housing Administration

Core

FICO Score

The most widely used credit scoring model

Borrower

First Mortgage

The primary loan secured by a property

Core

Fixed-Rate Mortgage

A mortgage with an interest rate that stays the same

Core

Flood Insurance

Insurance protecting against flood damage to property

Insurance

Forbearance

A temporary reduction or suspension of mortgage payments

Hardship

Freddie Mac

A government-sponsored enterprise that buys and securitizes mortgages

Core

Front-End Ratio

Housing expenses divided by gross monthly income

Borrower

G

Ginnie Mae

A government corporation that guarantees mortgage-backed securities

Core

Good Faith Estimate

An estimate of settlement charges from a mortgage lender

Process

Government-Sponsored Enterprise (GSE)

Federally chartered entities supporting the mortgage market

Core

Graduated Payment Mortgage

A mortgage with payments that increase over time

Core

Gross Income

Total income before taxes and deductions

Borrower

H

Hazard Insurance

Insurance protecting against physical damage to property

Insurance

Home Equity Line of Credit (HELOC)

A revolving credit line secured by your home equity

Core

Home Equity Loan

A loan that uses your home equity as collateral

Core

Home Inspection

A thorough examination of a property physical condition

Process

Homeowners Association (HOA)

An organization governing a community with shared amenities

Property

Homeowners Insurance

Insurance protecting your home against damage and liability

Insurance

HUD-1 Settlement Statement

A document listing all costs in a real estate transaction

Process

I

Index Rate

A benchmark rate used to calculate ARM interest rates

Financial

Initial Rate

The starting interest rate on an adjustable-rate mortgage

Financial

Interest Rate

The percentage charged for borrowing money

Core

Interest-Only Loan

A loan where only interest is paid for a set period

Core

Investment Property

Real estate purchased to generate income or profit

Investment

J

Jumbo Loan

A mortgage that exceeds conforming loan limits

Core

L

Lien

A legal claim against a property as security for a debt

Legal

Lis Pendens

A legal notice that a lawsuit involving property has been filed

Legal

Loan Estimate

A standardized form showing key loan terms and estimated costs

Process

Loan Officer

A professional who helps borrowers through the mortgage process

Process

Loan Origination Fee

A fee charged by the lender for processing the loan

Financial

Loan-to-Value Ratio (LTV)

The ratio of the loan amount to the appraised property value

Core

Lock-In Period

The time during which an interest rate is guaranteed

Process

M

Margin

The percentage added to an index rate to determine ARM rate

Financial

Market Value

The estimated price a property would sell for

Property

Maturity Date

The date when the final mortgage payment is due

Financial

Mortgage Broker

A professional who connects borrowers with mortgage lenders

Process

Mortgage Insurance

Insurance protecting the lender if the borrower defaults

Insurance

N

Negative Amortization

When loan payments are less than interest owed increasing the balance

Financial

Net Worth

Total assets minus total liabilities

Borrower

Non-Conforming Loan

A mortgage that does not meet Fannie Mae or Freddie Mac guidelines

Core

Non-QM Loan

A mortgage that does not meet qualified mortgage standards

Core

Note Rate

The interest rate stated on a mortgage note

Financial

O

Origination Fee

A fee charged for creating a new loan

Financial

Owner-Occupied

A property used as the borrower primary residence

Property

P

Par Rate

An interest rate with no discount points or lender credits

Financial

Payment Shock

A significant increase in monthly mortgage payments

Hardship

Penalty Clause

A provision imposing fees for specific actions

Legal

Per Diem Interest

Daily interest charged on a mortgage loan

Financial

Piggyback Loan

A second mortgage taken simultaneously with the first

Financial

PITI

Principal interest taxes and insurance combined monthly payment

Core

Planned Unit Development (PUD)

A community with shared spaces and amenities

Property

Pledged Asset

An asset used as collateral instead of a cash down payment

Financial

Power of Attorney

Legal authorization to act on someone behalf

Legal

Pre-Approval

A conditional commitment from a lender for a specific loan amount

Process

Pre-Qualification

An informal estimate of how much you may be able to borrow

Process

Prepayment Penalty

A fee for paying off a mortgage early

Financial

Primary Residence

The main home where a borrower lives

Property

Principal

The original amount of money borrowed in a loan

Core

Private Mortgage Insurance (PMI)

Insurance required for conventional loans with less than 20% down

Insurance

Purchase Money Mortgage

A mortgage used to buy the property securing the loan

Core

Q

Qualification Rate

The interest rate used to determine borrower eligibility

Borrower

Quit-Claim Deed

A deed transferring property rights without guarantees

Legal

R

Rate Adjustment

A change in interest rate on an adjustable-rate mortgage

Financial

Rate Lock

An agreement guaranteeing an interest rate for a set period

Process

Real Estate Owned (REO)

Property owned by a lender after foreclosure

Investment

Recasting

Recalculating mortgage payments after a large principal payment

Financial

Reconveyance

The transfer of property title back to the borrower after loan payoff

Legal

Recording Fees

Government fees for recording real estate documents

Process

Refinance

The process of replacing an existing mortgage with a new one

Core

Reverse Mortgage

A loan allowing homeowners 62+ to convert equity to cash

Core

Right of First Refusal

The right to match any offer before property is sold to others

Legal

S

Second Mortgage

An additional loan taken against home equity

Core

Seller Concession

A contribution from the seller toward buyer closing costs

Process

Servicing

The administration of a mortgage loan after closing

Process

Short Sale

Selling a property for less than the outstanding mortgage balance

Hardship

Subordination

An agreement changing the priority of liens on a property

Legal

Survey

A measurement of property boundaries and features

Property

Sweat Equity

Value added to a property through the owner labor

Property

T

Tax Lien

A government claim against property for unpaid taxes

Legal

Title Insurance

Insurance protecting against problems with property ownership

Insurance

Title Search

An examination of public records to verify property ownership

Process

Transfer Tax

A tax imposed when property ownership changes hands

Financial

Truth in Lending (TILA)

Federal law requiring lenders to disclose loan terms and costs

Legal

U

Underwriting

The process of evaluating a loan application for risk

Process

USDA Loan

A mortgage backed by the US Department of Agriculture

Core

V

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs

Core

Verification of Employment

Documentation confirming employment status and income

Process

Verification of Income

Documentation confirming income sources and amounts

Process

W

Warehouse Lending

Short-term funding used by mortgage lenders

Financial

Wraparound Mortgage

A mortgage that includes the balance of an existing mortgage

Financial

Y

Yield Spread Premium

A fee paid to a broker for delivering a higher interest rate

Financial

Z

Zero Closing Cost

A mortgage where closing costs are rolled into the loan

Financial

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Mortgage Glossary

A

Acceleration Clause

Addendum

Adjustable Rate Mortgage (ARM)

Affidavit

Amortization

Amortization Schedule

Annual Cap

Annual Percentage Rate (APR)

Appraisal

Assignment

Assumption

Automated Underwriting

B

Back-End Ratio

Balloon Payment

Basis Points

Blanket Mortgage

Bridge Loan

Buydown

C

Cap Rate

Cash Reserves

Cash-Out Refinance

Certificate of Occupancy

Chain of Title

Clear Title

Closing Costs

Closing Disclosure

Cloud on Title

Co-Signer

Combined Loan-to-Value (CLTV)

Commitment Letter

Comparables (Comps)

Conforming Loan

Construction Loan

Contingency

Conventional Loan

Cost of Funds Index (COFI)

Covenant

Credit Report

Credit Score

Credit Utilization

Cross-Collateralization

D

Debt Service Coverage Ratio (DSCR)

Debt-to-Income Ratio (DTI)

Deed of Trust

Default

Deficiency Judgment

Delinquency

Depreciation

Discount Points

Down Payment

Due-on-Sale Clause

E

Earnest Money

Encumbrance

Equity

Escrow

F

Fannie Mae

Federal Housing Administration (FHA)

FHA Loan

FICO Score

First Mortgage

Fixed-Rate Mortgage

Flood Insurance

Forbearance

Freddie Mac

Front-End Ratio

G

Ginnie Mae

Good Faith Estimate

Government-Sponsored Enterprise (GSE)

Graduated Payment Mortgage