Abstract of Title - A written history of the property title from its origin to the present.
Accrued Interest - The amount of interest due since the last payment.
Adjustable Rate Mortgage (ARM) - A type of mortgage loan on which payments may be adjusted as frequently as each month based on changes in the ARM interest rate index. (Each individual contract may stipulate interest rate limits and frequency of payment adjustments, known as caps.)
Agreement of Sale (Purchase Contract, Purchase Agreement, Sales Agreement) - A written document by which a Buyer agrees to buy and a Seller agrees to sell a property.Amortization - The repayment of a debt in a specified number of equal periodic installments that may include a portion of principal and accrued interest.
Amortization Schedule - A list of each payment due on a mortgage loan, which shows the amount applied to the principal, the amount applied to interest, and the remaining principal balance.
Annual Percentage Rate (APR) - The annual cost of a mortgage, including interest, loan fees and other costs.
Appraised Value - The estimated value of a home established by a professional who has a knowledge of real estate prices and markets.
Assumability - The ability of a mortgage loan to be taken over by a new borrower.
Appreciation - An increase in the value of real estate (property).
Balance Sheet - A statement of assets, liabilities and net worth.
Balloon Mortgage - A mortgage with monthly payments that are made for a certain period of time, at the end of which, the remaining balance is due.
Cap - A limit on the maximum that interest rates can rise on a variable-rate mortgage (ARM) during a specified period and over the life of the loan.
Closing/Settlement - The conclusion of the transfer of ownership on a property. Closing Costs Costs associated with the transfer of ownership of a property.
Credit Report - A report carried out by a credit reporting agency and used by the lender to determine whether an applicant is eligible for credit.
Debt-to-Income Ratio - The ratio of monthly debt payments to monthly gross income. Lenders use a housing ratio (mortgage payment divided by monthly income) and a total ratio (all debt including the mortgage payment) to determine whether a borrower's income qualifies him or her for a mortgage.
Deed Of Trust - In some states, the instrument used in place of a mortgage.
Deferred Interest - When monthly mortgage payments do not cover all the interest due, the interest not covered is added to the unpaid principal balance. This is also referred to as negative amortization.
Down Payment - The amount of the purchase price a buyer pays, in cash, at the time the loan originates.
Earnest Money or Good Faith Deposit - The deposit made by the person buying a property to a third agency, which is held in escrow until the transaction is completed.
Escrow - An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition; i.e., the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
First Mortgage - A mortgage having priority over all other liens.
FHA Loan - A loan insured by the Department of Housing and Urban Development of the Federal Housing Administration.
Fixed Rate Mortgage - A mortgage loan with a constant interest rate and payment throughout the life of the loan. The interest rate and payment amount are established at the time of origination.
Fully Indexed Interest Rate - This interest rate is the sum of the index rate on an adjustable rate mortgage plus the margin.
HomeownerÕs (or Hazard) Insurance - An insurance policy whereby, for a premium, an insurer agrees to insure a property in case of a loss.
HUD-1 Settlement Statement - Itemizes the charges to the buyer and the seller, and shows how the money gets paid out.
Index - Any number of economic indicators lenders use to calculate interest rate adjustments for adjustable rate mortgages. Examples include the 12-MTA, 11th District Cost of Funds, and LIBOR rates.
Initial Interest Rate - The introductory rate on an ARM, which usually changes at the first rate adjustment.
Interest Rate - The percentage of an amount of money that is paid for the use of that money over a period of time.
Interest Rate Cap - The most the interest rate on an ARM can increase or decrease at each adjustment period.
Lifetime Interest Rate Cap - The maximum the interest rate on an ARM can increase to over the life of the loan. Sometimes this is called the "ceiling rate."
Judgment Lien - A judgment by the court and placed as a lien against a property.
Loan-to-Value - The ratio that the principal amount of the loan has to the property's appraised value. You may see this represented as an 80% loan or, a 95% LTV.
Loss Payee Clause - The clause in an insurance policy indicating who is to be paid in the event of a loss.
Margin - Margin or spread is the difference between the interest rate charged on a loan and the index. The margin remains fixed over the life of the loan.
Mortgage - A legal document that transfers interest in a property and serves as a security for payment of a debt.
Mortgage Note - A written promise to repay a stated amount of money at a stated interest rate over a stated period of time.
Origination Fee - A fee charged by a lender to cover the cost of the process of making a mortgage loan.
Owner-occupied - A residence lived in by the borrower.
Payment Cap - The limit that the monthly payment can change from one adjustment period to another.
PITI - The acronym for Principal, Interest, Taxes and Insurance, usually the four parts of your monthly mortgage payment.
PMI (Private Mortgage Insurance) - An insurance policy offered by a private company to protect a lender against loss on a defaulted mortgage loan. Usually, PMI is required only for loans with a high loan-to-value ratio. The borrower usually pays the PMI premiums.
Points - An amount equal to 1% of the principal amount of the mortgage. Points are a one-time charge.
Prepayment Penalty - A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans.
Principal - The amount of the mortgage loan.
Purchase Price - The total selling price of the home, which includes the cash down payment and the principal on the loan.
Release Of Lien - An instrument that discharges a lien.
Refinance - Homeowners usually consider refinancing to reduce their monthly mortgage payment or to draw from the equity that has built up over a period of time. This is used to pay off an existing mortgage loan.
RESPA - Real Estate Settlement and Procedures Act. A law that requires the lender to disclose information to the borrower, including a Good Faith Estimate (GFE) of the borrowerÕs closing costs.
Security Instrument - The mortgage or deed of trust of the property.
Subordination - The act of acknowledging that a lien will have a position after a mortgage loan. This is accomplished by recording a Subordination Agreement.
Tax Lien - A lien against a property for unpaid taxes.
Term - The period of time over which a loan is paid.
Title - Evidence that establishes ownership of a property.
Title Insurance - The insurance that protects the lender and the homeowner against loss resulting from any inconsistencies in the title of a property.
Truth-in-Lending (TIL) Disclosure - Outlines the costs of a loan and discloses the APR and other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required. The lender is required to present the final version of a TIL disclosure at or prior to the closing meeting.
Trust Deed - An instrument given by the borrower to a third person (the trustee) vesting title to the property in the trustee's name as security for the borrower's payment of the mortgage loan.
Underwriting - The risk analysis of a borrower's loan application.
VA Loan - A loan that is partially guaranteed by the Veterans Administration and made by a private lender.