Glossary of Mortgage Terms

Amortization - The gradual reduction of debt by means of periodic payments sufficient to pay principal and interest and thereby liquidate the debt.

ARM - Adjustable Rate Mortgage. A loan where the interest rate can change according to the index, caps, and margin.

Appraisal - An unbiased, professional estimate of a property's value based on style, appearance, quality of construction, improvements, usefulness, and the comparable value of nearby properties.

Balloon Mortgage - A short-term loan, usually 5 to 7 years, that features a fixed interest rate, and a final large balloon payment for the balance of the mortgage.

Borrower - A person who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Broker - One who, for a commission or fee, brings parties together and assists in negotiating contracts between them. In real estate transactions, the broker usually brings together the buyer and the seller.

Caps - The maximum or minimum amount by which the interest rate on an adjustable rate mortgages can change over each adjustment and over its life. For example, a 2/6 cap means that the ARM cannot adjust more than 2% up or down each adjustment, or 6% from the start rate during its life.

Chattel - Personal Property.

Closing - The final settlement of the transfer of property. Involves the buyer's signing the mortgage note and an exchange of title.

Closing Agent - Assures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary, and records the documents.

Closing Costs - Fees and other charges paid by the buyer and seller at closing.

Closing Statement - A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

CO-Borrower - The person who is sharing the mortgage responsibility with the borrower.

Contingency - A clause within an Offer to Purchase or within the Contract for Sale that requires a certain condition be met before proceeding to closing.

Contract - An agreement between two or more parties to do or not to do a particular thing.

Contract for Sale (Conditional Sale Contract) - A sales contract whereby the borrower has possession of the property, but seller retains ownership of the property until the buyer has fulfilled the obligations put forth in the contract.

Conventional Mortgage - A mortgage not insured by the government, unlike FHA and VA loans that are insured by the government.

Counter Offer - The offer made by one party (buyer or seller) in response to an offer presented by the other.

Credit Report - A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Debt-To-Income Ratio - Long-term debt expenses as a percentage of monthly income.

Deed - The instrument that transfers title from the seller to the buyer.

Down Payment - The buyer's payment to the seller at closing for a percentage of the purchase price required by the buyer's mortgage loan.

Earnest Money - Money paid by the buyer to the seller at the time the Offer to Purchase is presented. Generally, earnest money is applied to the purchase price.

Equity - The owner's interest in a property. It is the difference between fair market value and the current amount the owner owes on the property.

Fair Market Value - The price at which a property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

First Mortgage - A mortgage that is a first lien on the property pledged as security.

FNMA- Federal National Mortgage Association - A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage-backed securities backed by pools of conventional loans. The US government backs payment of principal and interest on these securities. Popularly known as Fannie Mae.

Gross Monthly Income - The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions, and income from dividends and interest, provided that the individual can show a consistent history of receiving such income.

Hazard Insurance - A contract whereby, for an agreed premium, one party undertakes to compensate the other for loss on a specific subject by specified hazards, such as acts of God or war.

Index - A published financial benchmark used to help determine the interest rate for an adjustable rate mortgage on its adjustment. The margin is added to it.

Interest - Money paid for the use of money- that is; money paid for a loan.

Loan-To-Value Ratio - The relationship between the amount of a loan and the total value of the property. For example, if you receive a loan of $95,000 on a property that costs $100,000, the loan-to-value ratio is 95%.

Margin - The amount added to the index to help determine the new interest rate on an adjustable rate mortgage.

Mortgage Insurance - A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to fully re-pay a loan. Mortgage insurance makes it possible to buy a property with as little as 5% down payment.

Offer To Purchase - A legally binding, written contract that declares how much a buyer will pay for a house, provided certain conditions are met.

Origination Fee - Similar to a point, it is the fee paid to lenders for originating the loan.

PITI- Principle, Interest, Taxes and Insurance - the four main parts of a monthly mortgage payment.

Planned Unit Development (PUD) - A subdivision having lots of areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.

Points or Discount Points - A fee paid to lenders to lower the interest rate on the mortgage. One point equals one percent of the total mortgage amount.

Pre-Approval - Obtaining loan approval, by having the loan processed and underwritten, before an Offer to Purchase has been accepted by a seller.

Pre-Qualify - Ability to meet a lender's mortgage approval requirements.

Qualify - Ability to meet a lender's mortgage approval requirements.

Servicer - After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays taxes and insurance, and manages delinquent payments. Lenders may often sell or "release" servicing to another business, which means that a buyer will not necessarily send house payments to the original lender.

Title - The right of ownership and possession of a property.

Title Insurance - A policy that protects a buyer against errors, omissions or defects in the title of the property.


2009 1st Nationwide Mortgage, Inc. | Equal Housing Opportunity