Comprehensive Mortgage Glossary
This glossary contains key terms and definitions commonly used in the mortgage industry. It is intended as a reference for both consumers and mortgage professionals.
A
Acceleration Clause: A provision in a mortgage contract that allows the lender to demand immediate repayment of the entire outstanding loan balance if the borrower defaults.
Additional Principal Payment: An extra payment made above the regularly scheduled payment that goes directly toward reducing the loan principal.
Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that adjusts periodically based on a benchmark index plus a margin.
Amortization: The process of paying off a loan gradually over time through regular payments of principal and interest.
Amortization Schedule: A table detailing each periodic payment on a loan, showing the amounts applied to principal and interest and the remaining balance.
Annual Percentage Rate (APR): The annual cost of borrowing, including interest and certain fees, expressed as a percentage.
Appraisal: A professional assessment of a property’s market value, typically required by lenders to secure a mortgage.
Appraised Value: The value assigned to a property based on an appraisal.
Application Fee: A fee charged by a lender to process a mortgage application.
Assumption: The transfer of an existing mortgage obligation from the original borrower to a new borrower, subject to lender approval.
Attorney Closing: A closing process conducted by an attorney rather than a title company, common in certain states.
B
Balloon Mortgage: A mortgage characterized by periodic payments that do not fully amortize the loan principal, requiring a large lump-sum payment at the end of the term.
Basis Point: One-hundredth of a percentage point (0.01%), used to express changes in interest rates or yields.
Bridge Loan: A short-term loan used to bridge the gap between the sale of an existing property and the purchase of a new one.
Broker: A licensed professional who arranges mortgage loans between borrowers and lenders.
Buydown: A financing arrangement in which the borrower secures a lower interest rate for an initial period, often by paying points up front.
C
Cap: A limit on how much an adjustable-rate mortgage’s interest rate or payments can change; includes initial, periodic, and lifetime caps.
Certificate of Eligibility: A document issued by the VA certifying a veteran’s entitlement to VA home loan benefits.
Certificate of Title: A document from the title company verifying that the property title is clear of liens.
Closing: The final step in executing a real estate transaction, where the deed is transferred, and funds are disbursed.
Closing Costs: Fees and expenses, other than the price of the property, incurred by buyers and sellers during a real estate transaction.
Closing Disclosure (CD): A document that provides final loan terms and closing costs, required under TRID rules.
Collateral: Property or assets pledged as security for a loan.
Commitment Letter: A letter from a lender indicating approval of a loan under specified terms.
Conforming Loan: A mortgage that meets the underwriting guidelines set by Fannie Mae and Freddie Mac, including loan size limits.
Convertibility: The option to convert an adjustable-rate mortgage to a fixed-rate mortgage under certain conditions.
Credit Report: A detailed record of an individual’s credit history, used by lenders to assess creditworthiness.
Credit Score: A numeric representation of an individual’s creditworthiness, typically ranging from 300 to 850.
D
Debt-to-Income Ratio (DTI): The percentage of a borrower’s gross monthly income that goes toward debt payments, used to qualify for a mortgage.
Deed: A legal document that conveys ownership of real property.
Deed-in-Lieu of Foreclosure: A deed voluntarily transferred by the borrower to the lender to avoid foreclosure.
Default: Failure to meet the legal obligations or conditions of a loan, such as missing payments.
Delinquency: The failure to make a mortgage payment by the due date.
Discount Point: A fee paid at closing to reduce the interest rate on a mortgage; one point equals one percent of the loan amount.
Down Payment: The portion of a property’s purchase price paid in cash by the borrower at closing.
E
Earnest Money: A deposit made by a buyer to demonstrate good faith when making an offer on a property.
Equity: The difference between a property’s market value and the outstanding balance of mortgage liens against it.
Escrow: A neutral third-party account that holds funds such as taxes, insurance, or earnest money until they are disbursed.
Escrow Account: An account established by the lender to pay property taxes and insurance on behalf of the borrower using part of the monthly mortgage payment.
Escrow Analysis: The periodic review of an escrow account to ensure sufficient funds are available to pay taxes and insurance.
Equity Loan: A loan secured by the borrower’s equity in the property, often in the form of a second mortgage or HELOC.
F
Fannie Mae (FNMA): The Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgage loans.
Federal Housing Administration (FHA) Loan: A mortgage insured by the FHA, allowing lower down payments and more flexible credit requirements.
Fixed-Rate Mortgage: A mortgage with an interest rate that remains the same for the life of the loan.
Forbearance: A temporary reduction or suspension of mortgage payments granted by a lender in cases of financial hardship.
Foreclosure: The legal process by which a lender takes ownership of a property after the borrower defaults.
G
Ginnie Mae (GNMA): The Government National Mortgage Association, which guarantees mortgage-backed securities backed by federally insured loans.
Good Faith Estimate (GFE): An estimate of settlement charges required on certain mortgage loans, replaced by the Loan Estimate under TRID.
Gross Monthly Income: A borrower’s total monthly income before taxes and deductions.
H
Hazard Insurance: Insurance that protects against losses from fire, storms, and other hazards.
Home Equity Line of Credit (HELOC): A revolving line of credit secured by the borrower’s equity in the home.
Home Equity Loan: A loan that allows homeowners to borrow against the equity in their property.
Homeowners Association (HOA) Fees: Recurring fees paid by homeowners for community maintenance and amenities.
Homeowners Insurance: Insurance that covers damage to a home and personal property.
I
Impound Account: Another term for an escrow account.
Index: A benchmark interest rate that an ARM’s rate is tied to, such as the LIBOR or SOFR.
Initial Rate: The starting interest rate on an ARM before any adjustments.
Interest: The cost of borrowing money, expressed as a percentage of the loan amount.
Interest-Only Mortgage: A mortgage where the borrower pays only interest for a specified period, with principal payments deferred.
J
Jumbo Loan: A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac.
L
Late Charge: A fee assessed when a mortgage payment is not received by the due date.
Lender: An institution or individual that lends money for a mortgage.
Lien: A legal claim on a property as security for a debt.
Loan Estimate (LE): A three-page document that provides an estimate of loan terms and closing costs, required under TRID.
Loan-to-Value Ratio (LTV): The ratio of a loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Lock-In: A guarantee from a lender that a specified interest rate will be honored if the loan closes within a set period.
Lock Period: The time frame during which a rate lock is valid.
M
Margin: The percentage points added to the index rate to determine the interest rate on an ARM.
Mortgage: A legal instrument that pledges a property as security for the repayment of a loan.
Mortgage Banker: A company that originates and funds mortgage loans using its own funds.
Mortgage Broker: An intermediary who arranges mortgage loans between borrowers and lenders.
Mortgage Insurance (MI): Insurance that protects the lender against loss if a borrower defaults, required when the down payment is below 20%.
Mortgage Insurance Premium (MIP): The fee paid by a borrower for FHA mortgage insurance.
Mortgage Note: A legal document in which the borrower promises to repay the loan under agreed terms.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Mortgage-Backed Security (MBS): A financial instrument backed by a pool of mortgage loans.
N
Negative Amortization: When loan payments are insufficient to cover the interest, causing the loan balance to increase.
Nationwide Multistate Licensing System (NMLS): A system for registering and licensing mortgage loan originators.
Non-Recourse Loan: A loan where the lender’s only remedy in case of default is to repossess the property, not pursue other assets.
O
Origination Fee: A fee charged by a lender to cover the cost of processing a new loan application.
P
Par Rate: The interest rate at which a borrower pays no points to obtain the loan.
PITI: Principal, Interest, Taxes, and Insurance—the four components of a monthly mortgage payment.
Pre-Approval: A lender’s conditional commitment to lend, based on a preliminary review of credit and financial documents.
Prepayment: Paying off a loan sooner than the scheduled term.
Prepayment Penalty: A fee charged for paying off a loan early.
Principal: The amount of money borrowed or still owed on a loan, excluding interest.
Private Mortgage Insurance (PMI): Insurance required by lenders when the down payment is less than 20% to protect against borrower default.
Q
Qualifying Ratio: See Debt-to-Income Ratio.
R
Rate Lock: See Lock-In.
Real Estate Settlement Procedures Act (RESPA): Federal law requiring disclosure of settlement costs.
Recission Period: A three-business-day period during which a borrower can cancel certain mortgage transactions.
Refinance: Replacing an existing mortgage with a new loan, typically to obtain a lower rate or different terms.
Repayment Plan: An arrangement in forbearance to repay missed payments over time.
S
Securitization: The process of pooling mortgage loans and selling them as mortgage-backed securities.
Servicer: A company that collects mortgage payments and manages escrow accounts on behalf of investors.
Settlement Statement (HUD-1): A document detailing all closing charges, replaced by the Closing Disclosure for most loans under TRID.
Subprime Mortgage: A mortgage made to borrowers with lower credit scores, often at higher interest rates.
T
Title: The legal right to ownership of a property.
Title Insurance: Insurance that protects against losses from defects in the title.
Title Search: A search of public records to verify the property’s title status.
Truth in Lending Act (TILA): Federal law requiring disclosure of credit terms, including APR.
TILA-RESPA Integrated Disclosure (TRID): Rules integrating TILA and RESPA disclosure requirements for most residential mortgage loans.
U
Underwriting: The process by which a lender evaluates the risk of lending to a borrower.
Underwriting Approval: Final approval of a loan application after underwriting.
USDA Loan: A mortgage guaranteed by the U.S. Department of Agriculture for eligible rural properties.
V
VA Loan: A mortgage guaranteed by the Department of Veterans Affairs, available to qualifying veterans and service members.
Variable-Rate Mortgage: Another term for an adjustable-rate mortgage.
W
Walk-Through: A final inspection of the property by the buyer shortly before closing.
Warehouse Line: A short-term credit facility used by mortgage bankers to fund loans until they can be sold to investors.
Wraparound Mortgage: A mortgage that includes the balance of an existing mortgage plus additional financing.
Y
Yield Spread Premium (YSP): A payment from a lender to a broker for originating a loan at an interest rate above the par rate.
Z
Zoning: Local laws regulating land use and property improvements.