Mortgage Definition Glossary

A

Additional Principal:Additional Principal occurs when the monthly payments cover only part of the interest then due. The interest cost that is not covered is added to the unpaid principal balance. This additional amount is additional principal. It may also be called "negative amortization".

Adjustable Rate Mortgage(ARM):A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Agreement of Sale: The legal contract between buyer and seller of a property including the sale price, settlement date, and all conditions and terms of the sale.

Amortization Schedule: A timetable for payment of a mortgage showing the amount of each payment applie to interest and principal and the balance remaining.

Annual Percentage Rate(APR):The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination fee(points).

Appraisal: A professional opinion of the market value of a property.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes.

Assessed value: The valuation placed upon property by a public tax assessor for purposes of taxation. Assumable mortgage A mortgage that can be taken over by the buyer when a home is sold.

B-C

Balloon Mortgage:Type of mortgage loan where montly payments are made until a certain date when the remaining balance becomes payable in full.

Binder:A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Buy-Down:A procedure which the seller or builder of the property permanently or temporarily reduces the amount of interest the buyer will have to pay by paying points to the mortgage lender at closing.

Cap:A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Cash reverse:A requirement of some lenders that buyers have sufficient cash remaning after closing to make the first two monthly mortgage payments.

Certificate of Occupancy:A certificate issued by a local building department to a builder to a builder or renovator, stating that the building is in proper condition condition to be occupied and stating the legally permissible use.

Closing:The meeting during which the title to the property actually changes hands, documents are executed and the sale of the property and /or the loans is completed.It is usually attended by the buyer , the seller, a bank representative, each party's attorney and the title company representative.

Closing Cost:Costs associated with securing a mortgage and the sale and purchase of property.These expenses are usually paid on the day the title to the property is formally transferred from the seller to the buyer.

Commitment letter:Written agreement detaling the terms and conditions by which the bank will lend and the borrewer will borrow funds to finance a home.

Condominium:A structure of two or more units, the interior space of which are individually owned.

Conforming Loan:Amount A Fannie Mae(FNMA) established maximum loan amount based on the property's legal number of units (1 family, 2 family, etc.)

Loan amounts up to this maximum dollar amount are considered "conforming loans".

Contract of Sale:Written contract signed by both parties in which the seller agrees to sell and the buyer agrees to buy under certain specific terms and conditions.

Convertible ARM:An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Cooperatives(Co-ops):A structure of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation which owns the building.

Counteroffer:An offer to extend credit on different terms than the appicant originally requested.

Covenant:Generally, almost any promise set forth in a written agreement.Most  commonly, assurances set forth in a deed by the grantor or implied by law. 

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Debt Ratio: Monthly debt and housing payments divided by gross monthly income.Also known as Obligations-to-Income Ratio or Back-End Ratio.

Deed: A legal document conveying title (ownership) to real property from one individual to another.

Easement: The right to enter or use a portion of the land of another for a specific purpose.

Encroachment: Construction, such as wall, fence, building, etc., on the property of another.

Equity: A homeowner's financial interest in a property.Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.

Escrow:Funds held by lender, wet aside for payment of taxes and possible property and mortgage insurance and other recurring charges against real property.(Monthly mortgage payments usually  included principal, interest and escrow amounts.)

FHLMC (Freddie Mac) Federal Home Loan Mortgage Corporation: A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System and the Federal Loan Bank System.

Federal Emergency Management Agency(FEMA): The federal agency under which the National Flood Insurance Program is administered.

Federal Housing Authority(FHA): A part of the U.S Dept. of Housing and Urban Development which offers mortgage loan insurance programs to buyers of qualifying properties.

FHA mortgage: A mortgage that is insured by the Federal Housing Administration.First Mortgage A mortgage that has first claim i the event of default.

Flood Hazard Zones: Zones on the Flood Insurance Rate Map (fIRM) in which the risk premium insurance rates have been established by a Flood Insurance Study (FIS).

Flood Insurance Rate Map (FIRM): Official map of a community on which the Mitigation Division Administrator has delineated both the special hazard areas and the risk prmium zones applicable to the community.

Flood Plain: Any land area susceptible to being inundated by flood waters from any source.

FNMA(Fannie Mae): A quasi-government agency, now publicly owned, which purchases mortgages from the original mortgage lenders.

Finance Charge: The total dollar amount your loan will cost you. It includes all interest payments during the term of the loan, any interim interest paid at closing, your origination fee and any other charges paid to the lender or to a third party or an incident or condition of the extension of credit. Certain charges like the appraisal, credit report and title search charges are not included in the finance charge calculation.

Fixed Rate Mortgage: A mortgage having a rate of interest which remains the same for the life of the mortgage.

Flood insurance: Insurance indemnifying against loss by flood damage, required by lenders in areas designated (federally) as potencial flood areas.

Foreclosure: The legal remedy used by a mortgage lender to assume ownership of a property when the required loan payments are not made.