Mortgage Glossary

Amortization
The gradual repayment of a loan, both principal and interest, by installments.

Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months.

Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance and loan origination fees. This allows the buyer to compare loans; however, APR should not be confused with the actual note rate.

Appraisal
A written analysis prepared by a licensed appraiser to estimate the value of a property.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience and analysis of the property.

Asset
Anything owned of monetary value, including real property and personal property (may include but not limited to: bank accounts, stocks, mutual funds, etc.).

Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term, but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.

Bridge Loan
A second mortgage that is collateralized by the borrower's present home, allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a "swing loan."

Closing
A meeting held to finalize the loan process.

Closing Costs
These are expenses that are incurred by buyers and sellers when transferring ownership of a property. Closing costs will vary according to the loan program.

Closing Disclosure
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized number system. The totals at the bottom of page 3 of the Closing Disclosure define the borrower's net payment at closing.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Consumer Reporting Agency
An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository and from other sources.

Credit Report
A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
Failure to make mortgage payment on time.

Earnest Money
A deposit of money given to bind the sale of real estate.

Equity
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

Escrow
A deed, bond or money held in trust by a third party to be turned over to the grantee only upon fulfillment of a condition.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, or homeowner association dues, and other property expenses as they become due.

Escrow Payment
The part of a mortgagor's monthly payment that is held by the servicer to pay for property taxes, hazard insurance, mortgage insurance, or homeowner association dues, and other items as they become due.

FICO® Score
FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300-850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equates to better loan terms.

First Mortgage
The primary lien against a property.

HUD Annual Insurance Premium
Loan Guarantee Fee paid monthly to HUD based on the outstanding principal balance at the rate of 0.25%, until the loan to value ratio of 78% is achieved.

HUD Guarantee Fee
Fee paid at closing to HUD based on 1.50% of the principal loan amount; the fee is typically added into the final loan amount.

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Interest
The fee charged for borrowing money.

Late Charge
The penalty a borrower must pay when a payment is made after the stated grace period (usually 15 days) after the due date.

Liabilities
A person's financial obligations.

Loan
A sum of borrowed money that is generally repaid with interest.

Loan Estimate
The Loan Estimate provides information regarding your loan request, including the estimated interest rate, monthly payment and total closing costs.

Loan-to-Value (LTV)
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Lock-in Period
The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing.

Maturity
The date on which the principal balance of a loan becomes due and payable.

Mortgagee
The lender in a mortgage agreement.

Mortgagor
The borrower in a mortgage agreement.

Net Worth
The value of all of a person's assets, including cash less liabilities.

Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination Fee
A fee paid to a lender for processing a loan application.

Points
A point is equal to one percent of the principal amount of your mortgage. Points are usually collected at closing and may be paid by the borrower or the home seller.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Approval
The process of determining how much money you will be eligible to borrow based on income, current debts and credit.

Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.

Principal, Interest, Taxes and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and hazard insurance, whether these amounts are paid into an escrow account each month or not.

Private Mortgage Insurance (PMI)
Mortgage Insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Required for conventional mortgages with a loan-to-value above 80%.

Rate Lock
A commitment issued by a lender to a borrower guaranteeing a specified interest rate and lender costs for a specified period of time.

Refinance
Pay off one loan with the proceeds from a new loan using the same property as security.

Security
The property that will be pledged as collateral for a loan.

Servicer
An organization that collects principal and interest payments from borrowers and manages the borrowers' escrow accounts.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.