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Explore our Mortgage Glossary.
Understand key Mortgage terms and definitions to make informed and confident property decisions.
Welcome to our Mortgage Glossary.
This comprehensive Mortgage glossary is designed to help home buyers and sellers understand the important Mortgage terms and definitions that are crucial in the buying and selling process. Whether you are a first-time homebuyer or a seasoned investor, understanding Mortgage terminology can significantly impact your property decisions. Explore the essential terms in our Mortgage glossary to gain better insights into the industry.
Be sure to also explore our Real Estate Glossary!
Glossary of Mortgage Terms
| Term | Definition |
|---|---|
| Abandonment | The voluntary surrender or relinquishment of rights in a property without naming a successor. |
| Abatement | A reduction or decrease, particularly of rent or taxes. |
| Abrogate | To formally annul or repeal a law or agreement. |
| Absolute Title | A title that is clear of any liens, encumbrances, or legal disputes. |
| Abstract Update | A review and update of a property's title history to ensure clear ownership. |
| Acceleration | A clause that allows a lender to demand full repayment of a loan if certain conditions are met. |
| Acknowledgement | A formal declaration before a notary or other authorized official confirming the authenticity of a document. |
| Act of God | A natural and unavoidable catastrophe that interrupts the expected course of events, such as a flood or earthquake. |
| Addendum | An additional document added to a contract, modifying its terms. |
| Adjustable Rate Mortgage (ARM) | A mortgage that has an interest rate that may change periodically based on an index. |
| Adjustments (In Appraisal) | Changes to the estimated value of a property based on specific comparable sales. |
| Adjustment Date | The date on which the interest rate changes for an adjustable-rate mortgage. |
| Adjustment Interval | The period between adjustment dates for an adjustable-rate mortgage. |
| Adjustment Period | The interval at which an adjustable-rate mortgage's interest rate may change. |
| Affordability Analysis | An assessment of a borrower's ability to afford the purchase of a home, considering income, debts, and living expenses. |
| Agency | A legal relationship in which a real estate agent represents a client in a transaction. |
| Amortization | The process of gradually repaying a loan through regular payments of principal and interest. |
| Amortization Schedule | A table showing the periodic loan payments, including amounts for principal and interest. |
| Amortization Term | The length of time required to amortize the mortgage loan expressed as a number of months. |
| Annual Percentage Rate (APR) | The annual rate charged for borrowing expressed as a single percentage number. |
| Appraisal | A professional evaluation of a property's market value. |
| Appraised Value | An estimation of a property's current market worth, as determined by an appraiser. |
| Appraiser | A professional who assesses the value of a property. |
| Arm’s Length Transaction | A transaction in which the buyers and sellers act independently without pressure from each other. |
| Assessment | A fee or tax levied on property for public improvements or services. |
| Assignment | The transfer of rights or property to another party. |
| Assumability | A feature of a mortgage allowing it to be transferred to a new borrower. |
| Assumption | The transfer of the seller's existing mortgage to the buyer. |
| Assumption Fee | A fee paid to the lender when a buyer assumes an existing mortgage. |
| Attachment | The legal seizure of property to ensure payment of a debt or to satisfy a legal judgment. |
| Attest | To witness and affirm the genuineness of a document or signature. |
| Attorney’s Opinion of Title | A lawyer’s written statement regarding the condition of a property’s title. |
| Back End Ratio | A ratio that indicates a borrower's debt-to-income proportion, including all monthly debts. |
| Bad Title | A title with unresolved defects impacting ownership. |
| Balloon Mortgage | A loan with regular payments for a set period, followed by one large final payment. |
| Balloon Payment | A large payment due at the end of a loan term after a series of smaller payments. |
| Bankruptcy | A legal process where individuals or businesses who can't repay debts seek relief from some or all of their liabilities. |
| Basis Point | One hundredth of one percent, used in expressing differences in interest rates. |
| Beneficiary | The person or entity entitled to receive benefits from a trust, estate, or deed of trust. |
| Bill of Sale | A document that transfers ownership of personal property. |
| Biweekly Payment Mortgage | A mortgage plan where payments are made every two weeks, reducing the loan’s term. |
| Blanket Mortgage | A single mortgage that covers more than one piece of real estate. |
| Blended Rate | The weighted average interest rate of all loans in a combination. |
| Bona Fide | In good faith; genuine. |
| Borrower (Mortgagor) | An individual who takes out a loan secured by real property. |
| Bridge Loan | A short-term loan used to finance the purchase of a new property until long-term financing is in place. |
| Broker | A licensed real estate professional who acts as an intermediary between buyers and sellers. |
| Buy-down | An upfront payment to reduce the interest rate on a mortgage. |
| Cash Flow | The net amount of cash being transferred into and out of a business, especially from real estate income and expenses. |
| Caps (interest) | Limits on the amount interest rates can rise or fall on adjustable-rate mortgages. |
| Caps (payment) | Limits on the amount monthly payments on an adjustable-rate mortgage can increase. |
| Ceiling | The maximum interest rate or monthly payment allowed on an adjustable-rate mortgage. |
| Certificate of Eligibility | A document from the VA certifying a veteran's eligibility for a VA loan. |
| Certificate of Reasonable Value (CRV) | A VA document establishing the maximum value and loan amount for a VA-backed mortgage. |
| Certificate of Title | A document stating that a property’s title is clear and free of legal claims. |
| Certificate of Veteran Status | A document issued by the VA verifying a borrower's status as a veteran. |
| Chattel | Personal property which can be moved, such as furniture. |
| Change Frequency | How often the interest rate on an adjustable-rate mortgage can change. |
| Clear Title | A title free of liens, encumbrances, or other legal questions. |
| Closing | The final step in a real estate transaction where the transfer of ownership occurs. |
| Closing Agent | A person who coordinates the closing activities, ensuring that all documents and payments are completed. |
| Closing Costs | Expenses over and above the purchase price that buyers and sellers normally incur to complete a real estate transaction. |
| Cloud on Title | An unresolved issue or claim that could affect the ownership of property. |
| Code of Ethics | A set of guidelines and standards regulating the conduct of professionals within an industry. |
| COFI | Cost of Funds Index; an index used to calculate variable-rate mortgage interest rates. |
| Collateral | Property or assets pledged as security for a loan. |
| Combined Loan to Value | The sum of all loans on a property in relation to the property’s value. |
| Commitment | A lender’s official promise to provide a loan under specified terms. |
| Conforming Loan | A mortgage that meets the loan limits and standards set by Fannie Mae and Freddie Mac. |
| Construction Loan | Short-term financing used to cover construction costs until a permanent loan is in place. |
| Consumer Reporting Agency (or Bureau) | An organization maintaining and providing consumer credit information, like Equifax, Experian, and TransUnion. |
| Contract Sale or Deed | A method of buying property under which the seller retains the title until the buyer has met the specified conditions. |
| Controlled Business Arrangements (CBA) | Affiliate relationships between real estate industry businesses offering complementary services. |
| Conventional Loan | A mortgage that is not insured or guaranteed by the federal government. |
| Conversion Clause | A provision in an ARM allowing conversion to a fixed-rate mortgage under specified conditions. |
| Conveyance | The transfer of property from one party to another. |
| Covenant | A formal agreement or promise in a deed or contract. |
| Credit Report | A detailed report of an individual's credit history. |
| Credit Repository | A company that collects and maintains consumer credit information and provides it to lenders. |
| Credit Risk Score | A numerical expression evaluating an individual's creditworthiness. |
| Debt-to-Income Ratio | The percentage of a borrower's monthly gross income that goes toward paying debts. |
| Decree | An official order issued by a legal authority. |
| Deed | A legal document conveying ownership of property. |
| Deed of Trust | A document used in some states to convey property to a trustee, securing a loan or debt. |
| Default | Failure to fulfill financial obligations, such as not making scheduled loan payments. |
| Deferred Interest | Interest added to the principal balance of a loan when a borrower is not required to make interest payments. |
| Delinquency | The state of being late on a loan payment. |
| Department of Veterans Affairs (VA) | A federal agency offering benefits to military veterans, including guaranteed home loans. |
| Disclaimer | A statement that denies responsibility for certain facts or claims. |
| Discount Point | A fee paid to lower the interest rate on a loan. |
| Donor | An individual who gives a gift, often in a real estate context, funds for down payment assistance. |
| Down Payment | Money paid upfront by the buyer towards the purchase price of a property. |
| Due-on-Sale-Clause | A provision allowing lenders to demand full repayment if the property is sold. |
| Earnest Money | A deposit made by a buyer to show serious intent to purchase a property. |
| Effective Interest Rate | The interest rate factoring in compounding over a given period, usually annually. |
| Ejectment | A legal action to regain possession of property from another party. |
| Encumbrance | A claim or liability attached to a property, such as a mortgage or lien. |
| Entitlement | The VA's guarantee of a portion of a veteran's loan. |
| Equal Credit Opportunity Act (ECOA) | A federal law ensuring all consumers are given an equal chance to obtain credit. |
| Equity | The value of a homeowner's interest in their property. |
| Exculpatory Clause | A contract provision relieving one party of liability for certain damages. |
| Executed Contract | A contract in which all parties have fulfilled their obligations. |
| Escrow | A financial arrangement where funds are held by a third party on behalf of two transacting parties. |
| Escrow Disbursements | Payments made from an escrow account, typically for taxes and insurance. |
| Escrow Payment | The part of a mortgage payment held by the lender to pay property taxes and insurance. |
| Fannie Mae | A government-sponsored enterprise that provides financial products and services to increase access to homeownership. |
| Farmers Home Administration (FMHA) | A former government agency providing credit for agriculture and rural housing. |
| Federal Home Loan Bank Board (FHLBB) | Formerly regulated federal savings and loan associations and had oversight functions. |
| Federal Home Loan Mortgage Corporation (FHLMC) | A government-sponsored enterprise purchasing mortgages to stabilize the mortgage market, known as Freddie Mac. |
| Federal Housing Administration (FHA) | A government agency that provides mortgage insurance on loans made by FHA-approved lenders. |
| Federal National Mortgage Association (FNMA) | A government-sponsored enterprise providing liquidity in the mortgage industry, known as Fannie Mae. |
| FHA Loan | A mortgage insured by the Federal Housing Administration. |
| FHA Mortgage Insurance | Mandatory insurance for FHA loans protecting lenders against losses from borrower defaults. |
| FHLMC | Federal Home Loan Mortgage Corporation, widely known as Freddie Mac. |
| FICO Score | A credit score developed by Fair Isaac Corporation indicating a borrower's credit risk. |
| Firm Commitment | A mortgage lender's promise to provide a loan under specified terms. |
| First Mortgage | The primary lien against a property, holding priority over all other claims. |
| Fixed Installment | Regular payments on a loan, including both principal and interest, that remain consistent. |
| Fixed Rate Mortgage | A mortgage with an interest rate that remains the same for the life of the loan. |
| Float | Allowing an interest rate to vary with the market until a specified date, usually prior to loan closing. |
| Flood Insurance | Insurance covering damage due to flooding required by lenders for properties in flood-prone areas. |
| FNMA | Federal National Mortgage Association specialized in secondary mortgage market known as Fannie Mae. |
| Foreclosure | The legal process by which a lender takes control of a property from a borrower who failed to meet loan terms. |
| Freddie Mac | The Federal Home Loan Mortgage Corporation; buys mortgages from lenders and pools them for sale to investors. |
| Fraud | Deliberate deception for unlawful gain. |
| FSBO | For Sale By Owner; a property listed for sale directly by the owner. |
| Full Disclosure | The requirement to disclose all material facts to potential buyers about a property. |
| Fully Indexed Rate | The rate on an adjustable-rate mortgage calculated using an index plus the margin. |
| Funding | The process of providing funds to purchase a property or settle a loan. |
| Fully Amortized ARM | An adjustable-rate mortgage fully paid off by the end of its term through scheduled payments. |
| Gift Deed | A deed conveying property from one person to another as a gift without consideration. |
| Ginnie Mae | Government National Mortgage Association; guarantees government-backed mortgages. |
| Government National Mortgage Association (GNMA) | A government agency under HUD promoting homeownership by guaranteeing mortgage-backed securities known as Ginnie Mae. |
| Good Faith Estimate | An estimate of closing costs provided to borrowers within three days of applying for a loan. |
| Grace Period | The period after the due date during which payment may be made without penalty. |
| Graduated Payment Mortgage (GPM) | A mortgage with initial low payments that increase over time. |
| Gross Income | Total earned income before deductions for expenses, taxes, or other costs. |
| Growing Equity Mortgage (GEM) | A mortgage with scheduled increases in payments applied directly to principal, reducing loan term. |
| Guaranty | A promise to be responsible for another's debt or contractual performance if they fail to perform. |
| Guarantee Mortgage | A mortgage in which a third party assures the lender of payment in case of borrower default. |
| Hazard Insurance | Insurance protecting property from various risks, such as fire and theft, typically required by lenders. |
| Home Equity Line of Credit (HELOC) | A credit line secured by the equity in a home, allowing homeowners to borrow against their equity. |
| Housing Expenses-to-Income Ratio | A ratio comparing housing costs to gross income; used to gauge affordability. |
| HUD-1 Statement | A standard form listing all charges and credits to the buyer and seller in a real estate transaction. |
| Impound | An account maintained by the lender to pay property taxes and insurance. |
| Index | A benchmark interest rate to which an adjustable-rate mortgage is tied. |
| Indexed Rate | Interest rate on an ARM calculated by adding the index to the margin. |
| Initial Interest Rate | The starting rate for an adjustable-rate mortgage. |
| Installment | A regularly scheduled payment that reduces the principal and interest of a loan. |
| Insured Mortgage | A mortgage protected by private mortgage insurance or a government program. |
| Interest | The cost of borrowing money, typically a percentage of the amount borrowed. |
| Interest Accrual Rate | The rate at which interest accumulates on a loan. |
| Interest Rate Buydown Plan | A financing strategy that lowers the interest rate for a specified period. |
| Interest Rate Ceiling | The maximum interest rate allowed on an adjustable-rate mortgage. |
| Interest Rate Floor | The minimum interest rate allowed on an adjustable-rate mortgage. |
| Interim Financing | Short-term financing used until permanent funding is obtained. |
| Investor | An individual or entity that commits capital with the expectation of receiving profit. |
| Jumbo Loan | A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac. |
| Late Charge | A fee imposed for not paying a loan installment by its due date. |
| Lease-Purchase Mortgage Loan | A financing option allowing potential buyers to lease a property with an option to buy. |
| Liabilities | Financial obligations or debts. |
| Lien | A legal claim or hold on a property as security for a debt or charge. |
| Lifetime Payment Cap | A limit on the total amount that payments can increase over the life of an adjustable-rate mortgage. |
| Lifetime Rate Cap | A limit on the total interest rate increase over the life of an adjustable-rate mortgage. |
| Like-kind | An exchange where you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind. |
| Loan | A sum of money borrowed that is expected to be paid back with interest. |
| Loan to Value Ratio | A ratio comparing the loan amount to the appraised value or purchase price of the property. |
| Lock | An agreement guaranteeing a specific interest rate for a certain period. |
| Margin | The percentage added to the index to determine the fully indexed interest rate for an ARM. |
| Market Value | The price a property should sell for in an open and competitive market. |
| Maturity | The date on which a debt becomes due for payment. |
| MIP (Mortgage Insurance Premium) | An insurance premium paid on FHA loans to protect lenders against defaults. |
| Monthly Fixed Installment | Regular identical monthly payments of principal and interest on a mortgage. |
| Mortgage | A loan secured by real property. |
| Mortgage Banker | A company or individual that originates, sells, and services mortgage loans. |
| Mortgage Broker | An intermediary who brings borrowers and lenders together to obtain a loan. |
| Mortgagee | The lender in a mortgage. |
| Mortgage Insurance | Insurance protecting lenders against borrower default, required for loans with low down payments. |
| Mortgage Life Insurance | Insurance that pays off the mortgage upon the death of the borrower. |
| Mortgagor | The borrower in a mortgage who pledges the property as security for the loan. |
| Negative Amortization | When loan payments are not enough to cover the interest, causing the loan balance to increase. |
| Net Effective Income | Gross income minus taxes and other deductions; available income for debt repayments. |
| Non Assumption Clause | A clause prohibiting transfer of the mortgage to a new buyer. |
| Note | A legal document evidencing a loan, detailing the amount, terms, and interest rate. |
| Office of Thrift Supervision (OTS) | Former regulatory body for federal savings associations, now functions transferred to the OCC. |
| One Year Adjustable Rate Mortgage | ARM with interest rate adjustment every year. |
| Origination Fee | A fee charged by lenders for processing a new loan application. |
| Owner Financing | When the seller provides financing directly to the buyer. |
| Payment Change Date | The date the monthly payment on an adjustable-rate mortgage changes. |
| Periodic Payment Cap | A limit on how much an ARM's monthly payment can change during a period. |
| Periodic Rate Cap | A limit on how much interest rates can change on an ARM during any adjustment period. |
| Permanent Loan | A long-term mortgage replacing short-term construction financing. |
| PITI | Principal, Interest, Taxes, and Insurance: the four components of a mortgage payment. |
| Pledged Account Mortgage (PAM) | A mortgage where funds are pledged to reduce monthly payments during early years. |
| Points (Loan Discount Points) | Fees paid directly to the lender at closing in exchange for a reduced interest rate. |
| Power of Attorney | A legal document authorizing one person to act on another's behalf. |
| Preapproval | A lender's conditional commitment to loan a borrower a certain amount. |
| Prepaid Expenses | Costs paid in advance at closing, such as taxes and insurance. |
| Prepayment | The unscheduled repayment of a loan's principal amount before its due date. |
| Prepayment Penalty | A fee charged by lenders for paying off a loan early. |
| Primary Mortgage Market | The market where loans are originated directly between lenders and borrowers. |
| Principal | The original amount of money borrowed or the remaining balance on a loan. |
| Principal Balance | The outstanding balance of the principal on a loan. |
| Principal, Interest, Taxes, and Insurance (PITI) | The four components of a monthly mortgage payment. |
| Private Mortgage Insurance (PMI) | Insurance protecting the lender if the borrower defaults on the loan. |
| Qualifying Ratios | Financial ratios used by lenders to determine a borrower's ability to repay a loan. |
| Rate Lock | A guarantee by the lender to hold a specified interest rate for a designated period. |
| Realtor | A licensed real estate agent who is a member of the National Association of REALTORS. |
| Real Estate Agent | A licensed professional representing buyers or sellers in real estate transactions. |
| Rescission | The cancellation of a contract and return of the parties to their pre-contractual position. |
| Recording Fees | Charges for entering documents into public records. |
| Refinance | To replace an existing mortgage with a new one, usually with different terms. |
| Renegotiable Rate Mortgage | A type of adjustable-rate mortgage where the interest rate is periodically renegotiated. |
| RESPA | Real Estate Settlement Procedures Act; a law regulating closing costs and settlement procedures. |
| Reverse Annuity Mortgage (RAM) | A type of mortgage for seniors, where the lender makes periodic payments to the borrower. |
| Revolving Liability | A credit line, such as a credit card, that can be borrowed against repeatedly. |
| Real Estate Settlement Procedures Act (RESPA) | A federal law ensuring transparency in real estate transactions. |
| Satisfaction of Mortgage | A document confirming the mortgage has been paid in full. |
| Second Mortgage | A subordinate lien with lower priority than the first mortgage. |
| Secondary Mortgage Market | The market where existing mortgages are bought and sold. |
| Security | Property or assets pledged as collateral for a loan. |
| Seller Carry Back | When the seller provides financing to the buyer as part of the purchase price. |
| Servicer | The entity responsible for managing a loan, including collecting payments and handling customer service. |
| Servicing | The administration of a mortgage loan, including collecting payments, managing escrow accounts, and handling defaults. |
| Settlement/Settlement Costs | Expenses incurred during the closing of a real estate transaction, including fees for title insurance, appraisals, and legal services. |
| Shared Appreciation Mortgage (SAM) | A type of mortgage where the lender shares in the appreciation of the property value over time. |
| Short Sale | Real estate transaction where a homeowner sells their property for less than the amount they owe on their mortgage. |
| Simple Interest | Interest calculated only on the principal amount, not on accumulated interest. |
| Standard Payment Calculation | A method to determine the periodic payment required to repay a loan, including principal and interest. |
| Step Rate Mortgage | A loan with a fixed interest rate for initial periods that adjusts at specific intervals. |
| Subrogation | The substitution of one person or entity in place of another with respect to a legal claim or right. |
| Survey | A detailed map showing property boundaries, structures, and other features, prepared by a licensed surveyor. |
| Sweat Equity | The value added to a property through the labor and efforts of the owner rather than capital investment. |
| Tenancy | The legal possession or occupancy of property under a lease or rental agreement. |
| Tenancy By The Entirety | A form of joint property ownership available only to married couples, with rights of survivorship. |
| Tenancy in Common | A form of property co-ownership where each party holds an undivided interest that passes to their heirs upon death. |
| Tenancy in Severalty | Ownership of property by a single individual or entity. |
| Testament | A legal document, such as a will, stating a person's wishes regarding the distribution of their assets after death. |
| Third Party Origination | When a mortgage loan is originated through a third party, such as a mortgage broker. |
| Time Value of Money | The concept that money available today is worth more than the same amount in the future due to its earning potential. |
| Title | A legal document evidencing a person's right to or ownership of a property. |
| Title Binder | A temporary title insurance policy issued before the issuance of a formal title insurance policy. |
| Title Insurance | Insurance protecting against losses due to defects in the title not discovered before the policy was issued. |
| Title Search | An examination of public records to determine the legal ownership and any claims or liens on a property. |
| Total Expense Ratio | A measure comparing total expenses to gross income, used to gauge financial health. |
| Trust | A fiduciary relationship where one party holds property for the benefit of another. |
| Trustee | A person or entity holding legal title to property on behalf of another party. |
| Truth in Lending (TILA) | A federal law requiring lenders to disclose all terms and costs of a loan to borrowers. |
| Two Step Mortgage | An adjustable-rate mortgage with an initial fixed rate that adjusts to another fixed rate at a set time. |
| Underwrite | The process of evaluating a loan application to determine the lender's risk. |
| Underwriting | The analysis and evaluation of a borrower's credit, income, and collateral to determine loan eligibility. |
| Uniform Settlement Statement | A standardized form detailing all costs and charges imposed on borrowers and sellers in real estate transactions. |
| Unencumbered Property | Property free of liens, mortgages, or other legal claims. |
| Unrecorded Deed | A deed not entered into public records, potentially affecting the property's title. |
| Unsecured Loan | A loan not backed by collateral. |
| URAR | Uniform Residential Appraisal Report; a standard form used by appraisers to estimate the value of a residential property. |
| Usury | The practice of charging an illegally high-interest rate on a loan. |
| VA Loan | A mortgage loan guaranteed by the Department of Veterans Affairs, available to eligible veterans. |
| VA Mortgage Funding Fee | A fee required for VA loans, used to offset the cost of the VA loan program. |
| Variable Rate Mortgage (VRM) | A mortgage with an interest rate that can change periodically based on an index. |
| Verification of Deposit (VOD) | A document provided by a bank verifying the borrower's account balance and history. |
| Verification of Employment (VOE) | A document confirming a borrower's employment status, income, and job stability. |
| Vicarious Liability | Legal responsibility assigned to one party for the actions of another. |
| Void | Having no legal force or binding effect. |
| Waiver | The voluntary relinquishment of a known right or claim. |
| Warehouse Fee | A fee charged by lenders to hold or "warehouse" funds until a mortgage loan is sold to an investor. |
| Wraparound Mortgage | A financing arrangement where a new mortgage includes both an existing loan and additional funds. |
| Warranty Deed | A deed in which the seller guarantees that they hold clear title to a property and have the right to sell it. |
| Zoning | Regulations governing how land can be used and what structures can be built, enforced by local governments. |
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