Glossary of Terms

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.

Amortization: Loan payments consist of a portion which is applied to pay the accruing interest on a loan, with the remainder being applied to principle. Over time, the interest portion decreases and the amount going to principle increases in order to pay off the loan balance.

Assets: Items owned by a borrower that have value. These items could be cash, stocks or mutual funds, or real estate and personal property.

Balloon mortgage: A mortgage loan that requires the remaining principle balance be paid at a specific point in time.

Bond market: In the mortgage industry, the bond market is the buying and selling of 30 year bonds. As the yields on the bonds go up and down, fixed rate mortgages do the same thing.

Closing: The event at which the final loan documents are signed in front of a notary and on a purchase, the point when the title transfers to the new owner.

Closing costs: Closing costs are separated into two categories; “non-recurring closing costs” and “pre-paid items”. Non-recurring closing costs are items that occur only once as a result of buying the property or obtaining a loan. Pre-paid items occur over time, such as taxes and homeowner’s insurance. A Good Faith Estimate will illustrate both of these costs and must be sent to a borrower within three days of the loan application.

Delinquency: A mortgage loan on which a payment has not been made by the due date.

Fixed rate mortgage: A mortgage loan in which the interest rate does not change during the entire term of the loan.

Foreclosure: The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower’s loan.

Hazard insurance: Insurance policy protecting the property in case of physical damage.

Liabilities: A borrower’s obligations, which include short and long term debt.

Lien: Legal claim against a property. A first or second mortgage is considered a lien.

Loan-To-Value Ratio (LTV): The relationship between the dollar amount of a borrower’s mortgage loan and the value of the property.

Lock in Period: Length of time in which a note rate is guaranteed. The loan must close to disperse within this period.

Mortgage: A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.

Note: Legal document that requires a borrower to repay a loan over a certain time period.

Note rate: The interest rate on a mortgage note. Payments are based on this rate.

Reverse mortgage: A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.

Second Mortgage: A lien that is subordinate to a first mortgage.

Subordinate financing: Any lien that has a lower priority than that of a first mortgage. Home equity loans and second mortgages are common forms of subordinate financing.

Survey: A drawing showing the boundaries of a property. Surveys will also show easements, encroachments, and other features.

Title: Legal document proving ownership of a property.

Title Search: A search done by a title company at the county courthouse to any liens or encumbrances on a property’s title.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s ability and willingness to repay the debt and the value of the property.