Mortgage Terms

Adjustable Rate Mortgage (ARM) A mortgage loan that allows the lender to periodically adjust the interest rate, however abiding by the specific guidelines agreed upon during the conception of the loan. This typically amounts to a lower monthly payment initially that could result in a substantial increase in monthly principle in interest when the rate starts to adjust.


A written estimate of the property’s current market value or worth by a licensed appraiser. (Most often required by the lender)

APR: Annual Percentage Rate

The APR must be reported by lenders under Truth in Lending regulations. This percentage represents the relationship to the total finance charge to the amount of the loan. Basically, the true cost associated with your mortgage in percentage. APR includes mortgage insurance premiums but does not include payments to third parties, such as the costs associated with title insurers or appraisers.

Assumable mortgage

An assumable mortgage is a contract that allows a buyer to assume the mortgage contract of the seller. This means that the buyer assumes all of the obligations under the mortgage, almost as if they originally had taken out the loan themselves. Assuming a loan can be very beneficial as the buyer can save money if the rate on the existing loan is below the current market rate, no to mention closing costs are avoided as well.


The repayment of principal from scheduled mortgage payments that exceed the interest due. The scheduled payment less the interest equals amortization. The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment.

Cash-Out Refinance

To refinance for an amount that exceeds the balance of existing loan, plus settlement costs. The borrower takes “cash-out” of the transaction, which is most often an alternative to taking out a home equity loan.

Closing Costs or Settlement Charges

Costs that the borrower must pay at the time of closing additional to the down payment.


Assets pledged by the borrower to secure repayment of the loan.

Cumulative Interest

The sum of all interest payments to date and/or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money

Debt Consolidation

Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later. Benefits borrowers by reducing their finance costs, as the interest rates on a mortgage loan are usually below that on short-term debt, and the convenience of making fewer payments.

Down payment

The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%.


The difference between the value of a property and the balance of the outstanding mortgage loans on the property.


Home mortgage transactions often consist of an escrow agreement, where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due.

Fannie Mae& Freddie Mac

Two Federal agencies that purchase home loans from lenders. Both Fannie and Freddie finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools. The securities are guaranteed by the agencies. They also raise funds by selling notes and other liabilities

First Mortgage

A mortgage in which the lender has a first-priority claim against the property in the event the borrower defaults on the loan. For example, a borrower defaults on a loan secured by a property worth $100,000 net of sale costs. The property has a first mortgage with a balance of $90,000 and a second mortgage with a balance of $15,000. The first mortgage lender can collect $90,000 plus any unpaid interest and foreclosure costs. The second mortgage lender can collect only what is left of the $100,000.

Fixed Rate Mortgage (FRM)

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage


Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing.

Gift of Equity

A sale price below market value, where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members. Lenders will usually allow the gift to count as down payment.

Good Faith Estimate (GFE)

The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application.

Hazard Insurance – Homeowner Insurance

Insurance required by the lender, purchased by the borrower, to protect the property against loss from fire and other hazards.

HUD1 Form

The form a borrower receives at closing that details all the payments and receipts among the parties in a real estate transaction, including borrower, lender, home seller, mortgage broker and other various service providers.

Late Fees

Fees that lenders are entitled to collect from borrowers who don’t pay within the grace period, which most mortgage notes offer a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16th or later.


The lender’s right to claim the borrower’s property in the event the borrower defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.

Loan-to-value ratio

The loan amount divided by the lesser of the selling price or the appraised value.Also referred to as LTV. The LTV and down payment are different ways of expressing the same set of facts


An option exercised by the borrower, at the time of the loan application or later, to “lock in” the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms throughout the length of the lock period, regardless of what happens between that point and the closing date.Ordinarily, the longer the period, the higher the price to the borrower

Mortgage Insurance

Insurance against loss provided to a mortgage lender in the event of borrower default. The borrower pays the premium, but the lender receives the protection.

Non-warrantable condo

A condominium project that does not meet lender requirements. Some examples would be a project that has hotel –like characteristics or where one person/entity owns more than 10% of the total units would be considered Non-Warrantable


A document that evidences a debt with a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two separate documents.


Shorthand for principal, interest, taxes and insurance, which are the components of the monthly housing expense.


Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA.


Paying off an old loan, while instantaneously taking out a new one. This may be done to reduce monthly payments, with a lower interest rate than existing loan, or as an alternative to a home equity loan, to raise cash.


The Real Estate Settlement Procedures Act, a Federal consumer protection statute first enacted in 1974. RESPA was designed to protect home purchasers and owners shopping for settlement services by mandating certain disclosures, and prohibiting referral fees and kickbacks.

Second Mortgage

A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage only receives payment after the lender holding the first mortgage is paid.

Subordinate Financing

A second mortgage on the property, which is not paid off when a new loan is taken out. The second mortgage lender must allow subordination of the second to the new first mortgage.

Truth in Lending (TIL)

The Federal law that specifies the information that must be provided to borrowers on different types of loans.

Waive Escrows

Authorization by the lender for the borrower to pay taxes and insurance directly. Not all loan types allow for escrows to be waived.

Your Credit Report

It is important to review your credit report to ensure that the information displayed is accurate. If there are inaccuracies reporting, it is important to take the proper steps to remove and/or correct that information. The Fair Credit Reporting Act (FCRA) requires consumer credit reporting companies to report accurate information.* Pay close attention to your personal information, name, date of birth and social security number, and address.
* Verify that the accounts reflecting on your credit report are indeed yours.Tips for Credit Repair:• Payoff any delinquent accounts
• Avoid paying minimums, pay more than just the minimum
• Make payments on time *35% of score is calculated by payment history*
• Keep balances on credit cards and other revolving credit low *30% of score is calculated by amount owed*
• Keep track of your debts and interest rate accompanying; put more money towards debts with higher interest rates
• Budget yourself – Know how much money you make and how much money you spend