We decode the top 100 mortgage terms you need to know, covering everything from Adjustable-Rate Mortgages to Zero-down options. Our comprehensive guide demystifies the language of the mortgage loan process, ensuring you’re fully informed every step of the way.
Starting on the path toward finding your dream home is exciting, but it can be overwhelming, especially if you’re a first-time buyer. The world of mortgages has many unique terms and phrases, which might seem like another language at first glance.
In this post, we’ll explain the 100 most common mortgage terms. From Adjustable-Rate Mortgages to Zero-down Mortgages, we’ve left no stone unturned to ensure that you can understand the jargon throughout the entirety of the mortgage loan process.
Mortgage Terms A-E
1. Adjustable-Rate Mortgage (ARM)
An Adjustable-Rate Mortgage (ARM) is a type of home loan in which the amount of interest you pay each month changes over time. When you first start an ARM, you’ll pay a fixed amount of interest at first, and then the amount of interest applied to your monthly mortgage payments will be adjusted periodically, usually either yearly or monthly.
In general, ARM mortgages are more affordable in the short term, as the interest customers pay is usually lower initially when compared to those on fixed-rate mortgages. However, if interest rates are hiked up, you may be hit with much higher monthly bills in the future. Having an ARM can also make it difficult to predict how much money you need to set aside for your mortgage each month.
2. Amortization
In the context of lending, amortization refers to how a mortgage loan is configured. Usually, new customers will pay higher interest early on and pay less towards their mortgage principal. Then, over time, they will gradually start to pay more on their principal, and the amount of interest paid will decrease.
3. Amortization Schedule
An amortization schedule sets out when the amount of money paid towards the principal and the interest will change over the course of the mortgage loan. It’s generated using the following amortization calculation:
Principal Payment= Total Monthly Payment – (Outstanding Loan Balance x Interest Rate / 12 Months)
You can estimate your own amortization schedule using a calculator tool such as this one by Bankrate.
4. Annual Percentage Rate (APR)
The annual percentage rate (APR) is the sum of the mortgage interest rate and other charges associated with your loan. The APR includes the current interest rate, points, mortgage broker fees, and any other charges required to get the mortgage loan. This means that it’s normal for the APR to be higher than the interest rate. You can find out more about your APR by referring to your mortgage loan estimate.
5. Appraisal
An appraisal is an unbiased, professional estimate of your property’s value. It’s conducted by a qualified appraiser, who will create a report following an in-person inspection. Home appraisals are required whenever you need to buy, refinance, or sell a property.
6. Assumption
Assumption is the process of acquiring an existing mortgage loan from the previous homeowner and is also referred to as an Assumable Mortgage. When taken on a seller’s mortgage, their current principal balance, interest rate, repayment period, and all other terms of their loan are transferred to the buyer,
7. Balloon Mortgage
A Balloon Mortgage is a type of loan that involves making lower monthly mortgage payments each month and then paying off the remainder of the loan in one large lump sum at the end of the mortgage term. Some Balloon Mortgage deals allow the customer to only make interest payments each month and pay the whole principal at the end of the deal. Alternatively, the customer could pay interest along with a small portion of the principal and pay the remaining principal balance at the end. Balloon Mortgages can be difficult to acquire and come with significant risk.
8. Bankruptcy
Filing for bankruptcy happens when someone cannot pay off their existing debt. It can help the person who is struggling financially by liquidating their assets or creating a repayment plan. To file for bankruptcy, you need to file a petition with the bankruptcy court. Your case will be handled in federal courts under rules outlined by the US Bankruptcy Code.
9. Binder
Binder refers to a home insurance binder, which is used to show proof of insurance to lenders when applying for a mortgage. It’s a temporary contract that is used while your homeowner’s insurance policy is going through the underwriting process and lasts for approximately 30 to 90 days or until your formal policy is issued.
10. Cap
A mortgage cap is a limit used to determine how much interest rates or monthly payments can increase over a specific period of time. Caps are most often used in association with ARMs.
11. Closing
Closing on a property is the last step in buying a home. It occurs when you and all other parties involved in the mortgage loan transaction sign all of the necessary documents. Once closing is complete, you are then responsible for the mortgage loan.
12. Closing Agent
The closing agent is the person who is responsible for ensuring that all parties have signed the documents needed to close on a mortgage loan. They help buyers to complete the homebuying process.
13. Closing Costs
Closing costs are the additional fees required to close on a property. These costs might include loan origination fees, discount points, appraisal fees, title searches, and more. Closing costs usually equal between 3 and 6% of the property’s purchase price.
14. Closing Disclosure
A closing disclosure is a long form that you will be given by the lender at least 3 business days before you close on a mortgage loan. It provides you with the final information on the loan you’ve chosen, loan terms, how much you’ll need to pay each month, and other costs.
15. Conforming Loan
A Conforming Loan is the most common type of mortgage loan. It means that the loan aligns with the requirements set by the Federal Housing Finance Agency (FHFA), as well as Fannie Mae and Freddie Mac — the two biggest mortgage buyers in the US.
16. Conventional Loan
A Conventional Mortgage Loan is a type of mortgage that is not secured or backed by any government agency. This category of loans encompasses both conforming and non-conforming types.
17. Conversion Clause
A conversion clause is a provision in some ARMs that allows the customer to change their loan to a Fixed-Rate Mortgage during their term. Usually, this is allowed to happen after the initial introductory period. When an ARM converts, the fixed interest rate is usually set in line with other current Fixed-Rate Mortgage Loans offered by the lender.
18. Covenant
Loan covenants are small, independent agreements that are made between the loan customer and lender, outlining things the customer should and should not do. This list is found in the credit agreement and is often lengthy. If the customer breaks one of the rules, it’s known as a covenant breach.
19. Credit Bureau
The credit bureau is an agency that collects and analyses consumer information to produce credit reports. These credit reports are used to evaluate your financial history, providing lenders with information on your debts, whether you make payments on time, and any financial issues.
20. Credit Report
A credit report is a report created by a credit bureau, which lenders use to find out how reliable the person applying for a loan is when it comes to repaying debts and spending their money responsibly. Lenders must look at the customer’s credit report as part of the mortgage application process.
21. Credit Score
A credit score is a number that shows how good someone is at handling their money based on the past behavior detailed in their credit report. This score is calculated using information such as borrowing and repayment history, the amount of funds the customer currently has, the length of their credit history, the types of credit they use, and any new credit.
22. Debt-to-Income Ratio (DTI)
The debt-to-income ratio (DTI) is a measurement of someone’s trustworthiness when it comes to borrowing money. It compares the applicant’s total monthly debt to their annual income. For most mortgages, the DTI of the customer needs to be 43% or less in order to qualify for a home loan.
23. Deed
A mortgage deed is a legal document that represents the transfer of ownership of real estate from one party to another. It’s used to convey the title of the property, showing that the buyer now legally owns it. Once the deed is signed and delivered and all conditions are met, the ownership of the property changes hands. The deed includes details like the names of the buyer and seller and a description of the property — and it must be signed by the person transferring the property.
24. Deed of Trust
A deed of trust is used in some states as an alternative to a mortgage. It involves three parties: the person taking out the loan, the lender, and a third party called the trustee. The loan customer transfers the property title to the trustee, who holds it as security for the loan provided by the lender. The trustee has the authority to foreclose on the property if the homeowner defaults on their loan without needing to go through court proceedings. Once the loan is fully paid off, the trustee transfers the property title back to the homeowner.
25. Default
Being in default means that the homeowner has failed to stick to the terms outlined in their mortgage or deed of trust. The most common way to be in default is to fail to make monthly mortgage payments. If this happens, the lender has the right to demand repayment of the entire outstanding balance, which is known as accelerating the debt. Taking matters a step further, the lender could also foreclose if the customer does not repay the loan amount or correct the default.
26. Discount Points
Discount points allow the customer to make a tradeoff between upfront costs and their monthly mortgage payments. By paying points instead, the customer will pay more initially in return for a lower interest rate, meaning that the amount needed to pay back the loan will be lower. One discount point equals 1% of the loan amount.
27. Down Payment
A down payment is a sum of money homebuyers are required to pay upfront to secure the property and get accepted for a home loan. Repeat and first-time homebuyers often only need a down payment of 3% for a conventional mortgage. However, this requirement varies from lender to lender. The amount of money that’s saved for a down payment can help prospective homebuyers determine the size of property they can afford.
Want to find out how much your mortgage payments could be based on your down payment? Try out our mortgage calculator.
28. Due-on-Sale Clause
A due-on-sale clause is a provision in the mortgage contract that ensures that the homeowner is required to repay their mortgage loan to their lender in full when selling their property. Mortgages with a due-on-sale clause cannot be assumed by the buyer.
29. Earnest Money
Earnest money is a “good faith” deposit the homebuyer gives to the seller as part of their offer to prove that they are set on purchasing the property. While it’s not required in order to secure the property, it is generally expected. The funds will be held in an escrow account until closing.
30. Equity
Equity refers to the portion of the property that the homeowner actually owns. It’s the difference between the current value of the property and the amount the owner still owes on their mortgage. Equity can increase by paying money towards the principal balance and by the property value increasing.
31. Escrow
Escrow refers to a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in the mortgage loan process. Similarly, being “in escrow” means that the third party holds something of value, such as the buyer’s earnest money, but the house sale has not yet closed.
32. Escrow Account
An escrow account is where money held by a third party is stored to keep it safe and secure throughout the house purchase process. It usually contains the buyer’s earnest money initially. After the house sale has closed, the escrow account will be used to store the homeowner’s funds for property taxes and homeowner’s insurance, often both required as part of the owner’s monthly mortgage payments.
33. Escrow Analysis
Escrow analysis is an annual process that involves the lender reviewing the homeowner’s escrow account to ensure there are sufficient funds to cover the full amount of their bill. The monthly amount that must be paid into the escrow account will be adjusted following the lender’s annual escrow analysis.
Mortgage Terms F-J
34. Fannie Mae
Fannie Mae, also known as the Federal National Mortgage Association, is one of two companies set up by the US government to provide mortgage finances to homebuyers. The company purchases mortgages from lenders, allowing them to have access to more money to give out additional mortgage loans. Fannie Mae specializes in buying mortgages from larger commercial banks and lenders.
35. FHA Loan (Federal Housing Administration)
A Federal Housing Administration (FHA) Loan is a type of mortgage loan that is designed for those who do not qualify for a Conventional Loan or have a lower credit score than is needed to qualify for most other home loans. The FHA Loan has a lower credit score and down payment requirement and is particularly popular among first-time homebuyers.
36. Fixed-Rate Mortgage
A Fixed-Rate Mortgage is a type of mortgage loan where the customer pays the same rate of interest over the course of their mortgage term. The interest rate is set at the start of the loan term. This type of mortgage can offer stability to homeowners, as they will be certain of the amount of money needed to pay towards the interest each month. However, if the interest rates fall over time, the homeowner will not benefit from this change and will continue paying at the higher rate.
37. Flood Insurance
Flood insurance is a type of home insurance that covers losses to the property caused by flooding. The policy could include coverage of structural damage, electrical and plumbing system issues, damage to appliances, and more. In certain flood-prone parts of the US, flood insurance is required to qualify for a mortgage loan.
38. Floor
In the context of the mortgage loan process, “floor” refers to the minimum interest rate that can be charged over the course of the loan. It’s commonly set as part of an adjustable-rate mortgage. It acts as protection for the lender in cases of extreme drops in market interest rates.
39. Forbearance
Forbearance is a process put in place to help homeowners who are struggling to keep up with their monthly mortgage payments. When the customer requests mortgage forbearance, the lender arranges for them to pause their mortgage payments or make smaller payments until they’re in a better financial position. The customer will be expected to continue to pay their loan, including the missed payments, in the future.
40. Foreclosure
Foreclosure is the unfortunate process where the mortgage lender takes control of the property in situations where the owner defaults on their home loan. When foreclosure does occur, lenders often endeavor to work with the customer to find a solution, which could include modifying monthly mortgage payments in the future. The foreclosure process can be judicial or non-judicial.
41. Freddie Mac
Freddie Mac, similar to Fannie Mae, is a company set up by the government to help support the property market by buying mortgages from lenders and freeing up their funds. Freddie Mac specializes in buying mortgages from smaller banks and credit unions.
42. Ginnie Mae
Ginnie Mae, also known as the Government National Mortgage Association, is an agency wholly owned by the US Department of Housing and Urban Development (HUD). Ginnie Mae supports the US property market by giving low and moderate-income citizens access to affordable housing. The agency does not buy mortgages but instead guarantees on-time payment of the principal and interest on securities issued by certain approved mortgage lenders.
43. Good Faith Estimate (GFE)
A good faith estimate (GFE) is a document that outlines all of the details of a home loan. It is still used occasionally, but most commonly, these details are now included in the loan estimate given to the loan customer. Essentially, GFEs are written to help buyers understand the terms of their mortgage.
44. Government Loan
A Government Loan is a mortgage loan that is supported by the US government. The most common Government Loan is the FHA Loan application, but certain US citizens may also qualify for the Indian Home Loan Guarantee Program, the VA Loan, or the USDA Loan.
45. Hazard Insurance
Hazard insurance is a type of insurance that protects the homeowner from damage caused by fires, storms, and other natural disasters. It is most often included as a section of the homeowner’s insurance policy.
46. Home Equity Line of Credit (HELOC)
A home equity line of credit, commonly known as HELOC, is a source of credit that the homeowner can use to gain access to their property’s equity funds. It works in a similar way to a credit card; there is a maximum limit of funds that can be borrowed, and the homeowner takes out money as needed during the draw period. The interest rate on a HELOC is usually variable, meaning it can change over time based on market conditions. During the draw period, the homeowner may be required to make interest-only payments, and then after the period ends, they will enter the repayment period where they will need to pay back all that they have borrowed, plus interest.
47. Home Equity Loan
A Home Equity Loan is a lump-sum loan where the homeowner receives their entire loan at once. The loan will typically have a fixed interest rate, and repayments will be made over a set period at regular intervals. A Home Equity Loan offers increased stability when compared to a HELOC, albeit with less flexibility.
48. Home Inspection
A home inspection is a visit conducted by an independent inspector who assesses the property’s condition to reveal any issues with the home. While not required as part of the mortgage loan process, it can be a helpful way to spot issues that might make the buyer rethink purchasing the property.
49. Homeowner’s Insurance
Homeowner’s insurance pays for losses and damages to the property when something unexpected happens, such as a fire or robbery. Homeowner’s insurance is normally required by the lender to qualify for a mortgage loan. Payments towards insurance are usually made using an escrow account.
50. HUD-1 Settlement Statement
A HUD-1 Settlement Statement is a document that outlines all of the charges and credits to the property buyer, as well as the seller, in a house sale transaction. It could also be used in the mortgage refinance process.
HUD-1 Settlement Statements were only used as part of the mortgage process until October 2015. Now, buyers and sellers will instead receive a closing disclosure.
51. Index
The term “index” refers to a benchmark interest rate that is used to determine the rate of the mortgage. This is used as part of ARMs. An ARM’s interest rate is typically composed of two parts: the index rate and a margin.
52. Interest
Interest is the additional charge loan customers pay to lenders in return for borrowing a sum of money. It is typically expressed as a percentage of the principal, which is the original amount of money borrowed and is how lenders make a profit from loans to customers.
53. Interest-Only Mortgage
An Interest-Only Mortgage Loan is a deal that allows the homeowner to just pay interest each month for the first few years of their mortgage term. This means the customer will be paying significantly lower monthly fees initially, which will increase down the line. Once the interest-only period ends, monthly payments can be significantly higher, and the homeowner will pay more overall when compared to a Conventional Loan.
54. Jumbo Loan
A Jumbo Loan is a type of mortgage loan used to cover the cost of properties that are valued above the Conventional Loan limit for a Conforming Loan. Jumbo Loans are designed for large, high-value properties.
Mortgage Terms K-O
55. Lien
A mortgage lien is a legal right, taken by the lender, to take a property if the homeowner fails to repay their home loan. It’s used as security for the loan, ensuring the obligation of the mortgage customer is fulfilled.
56. Loan Estimate
A loan estimate is a document that sets out all of the information the buyer needs to understand a potential home loan in a clear and simple way. It explains exactly how much the buyer can expect to pay and for how long. Loan estimates are also written in a standardized format, so it’s easy to compare lender to lender.
57. Loan Modification
A loan modification involves altering the terms of an existing mortgage to make the payments more manageable for the homeowner. This can include reducing the interest rate, extending the loan term, or changing other terms. It’s typically used when a homeowner is facing financial hardship and is at risk of defaulting on their mortgage. The modification aims to create a more affordable and sustainable payment plan, helping the homeowner avoid foreclosure. It’s different from refinancing, as the original loan is adjusted rather than replaced with a new one.
58. Loan Processor
A loan processor plays a crucial role in the mortgage process, acting as a liaison between the loan applicant and the lender. They are responsible for collecting, verifying, and preparing all necessary documentation for a mortgage application. Their tasks include reviewing loan applications, obtaining credit reports, verifying employment and income, and ensuring that all paperwork complies with lender guidelines and legal requirements. The loan processor ensures that the application is complete and accurate before it is passed on to the underwriter for final approval.
59. Loan Servicer
A loan servicer is a company that manages the day-to-day administration of a mortgage loan. Their responsibilities include collecting monthly mortgage payments, managing escrow accounts, paying taxes and insurance on behalf of the homeowner, and providing customer service. They also handle loan modifications, forbearance agreements, and foreclosure proceedings if necessary. While the loan servicer is responsible for these tasks, they may not be the original lender; loans are often sold to other financial institutions, which appoint servicers to manage them.
60. Loan-to-Value Ratio (LTV)
The loan-to-value ratio (LTV) is a financial term used by lenders to express the ratio of a loan to the value of the asset purchased. It’s calculated by dividing the amount of the loan by the property’s appraised value or selling price, whichever is lower. LTV is a critical factor in determining the risk of a loan; a higher LTV ratio suggests more risk since it indicates that the customer is financing a larger portion of the property’s value. Lenders often require private mortgage insurance for loans with high LTV ratios.
61. Lock-in Period
The lock-in period in mortgage lending refers to a timeframe during which the lender guarantees a specific interest rate on a loan — as long as the loan is closed within that period. This protects the customer from rate increases while the loan is being processed. Lock-in periods can vary, typically ranging from 15 to 60 days. The customer usually has to pay a fee to lock in the rate. It’s important to note that if the lock-in period expires before the loan closes, the customer might have to pay the prevailing market rate.
62. Margin
In the context of a mortgage, margin refers to the amount a lender adds to the index rate to determine the interest rate on an Adjustable-Rate Mortgage. The margin is a fixed percentage that remains constant throughout the life of the loan. The total interest rate of an ARM is calculated by adding the index rate, which fluctuates based on market conditions, to the fixed margin set by the lender. The margin is a critical component in understanding how much the interest rate on an ARM can change over time.
63. Mortgage
A mortgage is a type of loan used to purchase or maintain a home, land, or other types of real estate. The homeowner agrees to pay the lender over time, typically in a series of regular payments divided into principal and interest. The property serves as collateral for the loan. If the homeowner fails to make the agreed payments, the lender has the right to repossess the property, a process known as foreclosure. Mortgages are a key mechanism in the ownership of real estate, allowing individuals to buy property without paying the full value upfront.
64. Mortgage Broker
A mortgage broker is a licensed professional who acts as an intermediary between loan applicants and lenders in the mortgage process. They work to find the best mortgage loan terms for the applicant by comparing offers from multiple lenders. Mortgage brokers gather financial information from the applicant, perform credit checks, and apply for loans on their behalf. They can provide expertise and guidance, especially for applicants with unique financial situations. Brokers typically earn a commission from the lender upon successful completion of a loan.
65. Mortgage Lender
A mortgage lender is a financial institution or private entity that provides funds to a customer for the purpose of purchasing real estate. This can include banks, credit unions, and online lenders. The lender sets the terms of the loan, including interest rate, repayment schedule, and other conditions. Upon agreeing to these terms, the customer receives the funds to buy the property, which then serves as collateral for the loan. If the customer fails to repay the loan, the lender has the right to foreclose on the property.
66. Mortgage Note
A mortgage note is a legal document that serves as evidence of a mortgage loan. It outlines the terms and conditions of the loan, including the amount borrowed, interest rate, repayment schedule, and the consequences of default. The note is a promissory note, making it a binding agreement where the homeowner promises to repay the lender according to the agreed terms. It’s a crucial document in the mortgage process and is held by the lender until the loan is fully repaid.
67. Mortgagee
The mortgagee is the entity that lends money to a customer for the purpose of purchasing real estate and holds the mortgage as a security for the loan. In most cases, the mortgagee is a bank, credit union, or other financial institution. It has the right to take possession of the property if the customer — known as the mortgagor — fails to make the agreed loan payments. The mortgagee’s role is crucial in the home loan process, providing the necessary funds and setting the terms of the mortgage.
68. Mortgagor
The mortgagor is the individual or entity who borrows money from a lender (mortgagee) to purchase real estate. In the mortgage agreement, the mortgagor pledges the property as collateral for the loan. This means if the mortgagor fails to make the required payments, the mortgagee has the right to foreclose on the property to recoup the loan amount. The mortgagor is responsible for making regular payments on the loan, including principal and interest, as well as maintaining the property.
69. Negative Amortization
Negative amortization occurs when the monthly payments on a loan are not sufficient to cover the interest due, causing the loan balance to increase over time instead of decrease. This situation often arises in Adjustable-Rate Mortgages with introductory periods of low payments. As unpaid interest is added to the principal, the homeowner ends up owing more than the original loan amount. While this can temporarily make payments more affordable, it can lead to higher payments in the future and decrease the equity the homeowner has in the property.
70. Notary Public
A notary public is an official commissioned by the state to serve as an impartial witness in the signing of important documents, including mortgage-related documents. Their primary role is to prevent fraud by verifying the identity of the signers, ensuring that they understand the contents of the documents and are signing willingly. The notary public confirms these details and then stamps or seals the documents to signify their involvement. In the mortgage process, a notary’s presence is often required for the final signing of the loan documents.
71. Origination Fee
The origination fee is a charge by the lender for processing a new loan application. It’s typically calculated as a percentage of the total loan amount and covers the cost of creating the loan, including credit checks, administrative services, and processing paperwork. The fee can vary depending on the lender and the type of loan. It’s an important factor to consider when comparing loan costs, as it can significantly impact the overall expense of obtaining a mortgage.
72. Origination Points
Origination points are fees paid to the lender at closing in exchange for a reduced interest rate on a mortgage, a practice known as “buying down the rate.” One point equals 1% of the loan amount. Customers can choose to pay more points upfront to secure a lower interest rate, which can result in lower monthly payments and less interest paid over the life of the loan. However, it increases the initial cost of obtaining the mortgage. The decision to pay origination points should be based on how long the customer plans to keep the loan.
Mortgage Terms P-T
73. PITI (Principal, Interest, Taxes and Insurance)
PITI is the sum of a monthly home loan payment that includes the principal (the amount borrowed), interest (the lender’s charge for lending you money), property taxes, and homeowner’s insurance. It represents the total monthly cost of owning a home and is used to determine a home loan customer’s affordability.
74. Points
Points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point equals 1% of the mortgage amount. Paying points can lower monthly mortgage payments.
75. Pre-approval
Pre-approval is a lender’s conditional commitment to offer a specific loan amount based on a customer’s creditworthiness and financial information. It’s more comprehensive than pre-qualification and gives a customer a clearer idea of how much they can borrow.
76. Pre-qualification
Pre-qualification is an initial evaluation by a lender of a loan applicant’s ability to pay for a home, which gives an estimate of the amount they might qualify to borrow. It’s based on financial information provided by the applicant and is less thorough than a pre-approval.
77. Prepayment Penalty
A prepayment penalty is a fee charged by some lenders if a homeowner pays off their mortgage early, either through refinancing or by making large payments. It’s designed to compensate the lender for the lost interest payments.
78. Principal
The principal is the amount of money a homeowner owes on a loan, excluding interest. Over the life of a mortgage, each payment reduces the principal amount owed.
79. Private Mortgage Insurance (PMI)
PMI is insurance that a loan customer might be required to buy if their down payment is less than 20% of the home’s value. It protects the lender in case the customer defaults on the loan.
80. Promissory Note
A promissory note is a legal document in which a homeowner agrees to repay a loan under agreed-upon terms, including interest rate and payment schedule. It’s a binding financial commitment.
81. Property Taxes
Property taxes are annual taxes levied by local governments on a property’s value. These taxes are often included in the monthly mortgage payment and handled by the lender.
82. Rate Lock
A rate lock is a guarantee from a lender to lock in a specific interest rate for a set period, protecting the homeowner from rate increases while the loan application is processed.
83. Recording Fees
Recording fees are charges paid to a local recording office for legally recording the deed and mortgage. It’s part of the closing costs in a real estate transaction.
84. Refinancing
Refinancing is the process of replacing an existing mortgage with a new one, typically to secure a lower interest rate, change loan terms, or consolidate debt.
85. Rescission
Rescission is the right of a homeowner to cancel a home equity loan or refinancing agreement, without penalty, within three business days of signing the loan agreement, as provided by the Truth in Lending Act.
86. Reverse Mortgage
A reverse mortgage is a loan for seniors aged 62 and older, allowing them to convert part of their home equity into cash. The loan is repaid when the homeowner moves out or passes away.
87. Second Mortgage
A second mortgage is a loan taken out on a property that is already mortgaged. It’s subordinate to the first mortgage and typically has a higher interest rate.
88. Short Sale
A short sale occurs when a property is sold for less than the outstanding mortgage balance, with the lender’s approval. It’s an alternative to foreclosure for homeowners unable to pay their mortgage.
89. Term
The term of a mortgage is the length of time a homeowner has to repay the loan. Common terms are 15, 20, or 30 years. The term affects the payment amount and interest rate.
90. Title Company
A title company facilitates real estate transactions, conducts title searches, issues title insurance, and manages the transfer of funds and documents at closing.
91. Title Insurance
Title insurance protects lenders and homeowners against loss from disputes over the ownership of a property. It covers legal fees and losses related to title issues.
92. Title Search
A title search is an examination of public records to determine and confirm a property’s legal ownership and find any liens, encumbrances, or claims on the property.
93. Total Interest Percentage (TIP)
TIP represents the total amount of interest that a loan customer will pay over the loan term, expressed as a percentage of the loan amount. It helps customers understand the total cost of the loan.
94. Truth in Lending Act (TILA)
TILA is a federal law designed to promote the informed use of consumer credit. It requires lenders to disclose credit terms and costs clearly, including APR and other charges.
Mortgage Terms U-Z
95. Underwriter
An underwriter is a financial expert employed by a lender who evaluates and assesses the risk involved in lending to a potential customer. This process involves reviewing the customer’s credit history, income, assets, and the property’s value. Based on this analysis, the underwriter decides whether to approve, deny, or request additional information for a mortgage application. The underwriter’s primary goal is to ensure that loans are granted to creditworthy customers who are likely to repay them.
96. Underwriting
Underwriting in the mortgage industry is the process where a lender evaluates the risk of lending money to a customer. This involves examining the customer’s creditworthiness, income, debt-to-income ratio, and the property’s value. The underwriter assesses if the customer meets the lender’s criteria for a loan and determines the loan terms, including interest rates. This risk assessment is crucial to protect the lender against defaults while ensuring that customers are not overextended.
97. USDA Loan (United States Department of Agriculture)
A USDA Loan is a mortgage program backed by the United States Department of Agriculture, designed to assist rural homebuyers who meet specific income requirements. This program offers zero down payment loans to eligible applicants who wish to purchase homes in designated rural and suburban areas. USDA Loans are appealing due to their low-interest rates and no down payment requirement, but they have strict eligibility guidelines regarding income and the property’s location.
98. VA Loan (Veterans Affairs)
A VA Loan is a mortgage loan in the United States guaranteed by the Department of Veterans Affairs (VA). Designed for veterans, active-duty service members, and certain members of the National Guard and Reserves, VA Loans offer significant benefits, such as no down payment, no private mortgage insurance, and competitive interest rates. The VA guarantees a portion of the loan, enabling lenders to provide these favorable terms.
99. Variable Rate Mortgage
A Variable Rate Mortgage is a type of home loan where the interest rate may change over time based on an underlying benchmark or index. Unlike fixed-rate mortgages, the monthly payments can fluctuate, making them potentially more affordable initially but riskier if interest rates rise. Those looking for a home loan may choose this type of mortgage for its lower initial rates or if they plan to sell or refinance the home within a short period.
100. Zero-down Mortgage
A Zero-down Mortgage is a home loan that doesn’t require the loan customer to make a down payment, allowing them to finance 100% of the home’s purchase price. This type of mortgage is beneficial for buyers who cannot afford a significant upfront payment. However, it may lead to higher monthly payments and additional costs like mortgage insurance, as lenders typically view these loans as higher risk.
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Article Sources
- Investopedia — “Adjustable-Rate Mortgage (ARM): What It Is and Different Types” Apr 11, 2023
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