Reference Links - Mortgage Glossary

These are some common terms/phrases that you may come accross:

Adjustable Rate Mortgage (ARM) Loan
Periodically adjusted interest rate (1yr, 3yr, 5yr, 7yr, and 10yr) based on a preselected index. Some can be convertible into fixed rate loans. Also known as Renegotiable Rate Mortgage, Variable Rate Mortgage or the Canadian Rollover Mortgage.

Amortization
The gradual repayment of a mortgage loan by installments.

Amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.

Assessment
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

Balloon Mortgage
Longer amortization period than the term of the loan. Usually a 30 year amortization schedule on a 5 year term. At the end of the term, the remaining outstanding principal is due. This final payment is called a balloon payment.

Cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used.

Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors often provide estimates of closing costs to prospective homebuyers.

Construction Loan
A short term loan to pay for construction of buildings or homes. Usually used to provide periodic disbursements to the builder as construction progresses. Can be fixed or adjustable, convertible or non-convertible. Can also be turned into a long term loan.

Conventional mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

Convertible
Allows the borrower to switch from an ARM to a Fixed Rate Mortgage.

Credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA Loan
Insured by the Federal Housing Administration and open to all qualified home buyers. FHA loan limits are different for some counties. Visit the HUD website to determine what limits apply to your location.

Fixed Rate Conforming Loan
The mortgage interest rate remains constant throughout the term of the mortgage.

Non-Convertible
Borrower may not switch from an ARM to a Fixed Rate Mortgage.

VA Loan
A long-term, low- or no-down payment loan guaranteed by the Department of Veteran Affairs. Restricted to individuals qualified by military service or other entitlements.