Glossary Of Mortgage Terms
Below are definitions of some the main terms used by mortgage professionals. While not comprehensive, the list includes some of the most commonly used terms.
Adjustable-rate Mortgage (ARM)
A mortgage with an interest rate that changes based on market rates and economic trends.
Annual Percentage Rate (APR)
The rate a borrower pays on a loan.
Certificate of Title
A written opinion by an attorney or a title company stating that clear ownership, marketability and an insurable title of the property described has been established from available records.
The miscellaneous expenses involved in closing a real estate transaction, over and above the price of the house. Also known as settlement costs.
A conventional mortgage is not guaranteed or insured by the federal government. A conventional loan refers to a mortgage that follows the guidelines of government sponsored enterprises such as Fannie Mae or Freddie Mac.
The difference between the market value of a home and the amount of the mortgage secured by it or a buyer’s initial and increasing ownership rights in a house. After the mortgage is totally paid, the buyer has 100% equity in the house.
Money that a buyer gives to a third-party to put into a reserve account. This can refer to earnest money deposits or to the mortgagee’s trust account for insurance and tax payments.
An abbreviation for the Federal National Mortgage Association. A Federally chartered, private corporation that provides a secondary market for residential mortgages.
Federal Housing Administration (FHA)
A division of the US Department of Housing and Urban Development (HUD). FHA mortgages are insurance backed loans made by approved FHA lenders.
Acronym for the Fair Isaac Company which is the firm that developed credit scoring as a means of reading credit history quickly. Credit scores are commonly referred to as FICO scores.
A mortgage that has an interest rate that does not change over the life of the loan.
An abbreviation for the Federal Home Loan Mortgage Corporation (FHLMC). A government agency that purchases mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers.
Good Faith Estimate (GFE)
A form that provides borrowers with basic information about the loan that was applied for and the estimated costs that associated with the loan.
Home Affordable Refinance Program (HARP)
A refinance program designed to help eligible borrowers to refinance to obtain a lower, more affordable interest rate.
Home Equity Line of Credit (HELOC)
A line of credit where a borrower’s home is used as collateral. Because a home is often considered a borrower’s most valuable asset, many borrowers use HELOCs only for extremely important reasons such as education or medical expenses.
US Department of Housing and Urban Development.
A fee charged by a lender for borrowers to use its money. This is part of what is repaid in a mortgage payment.
A hold or claim which one person has on the property of another as a security for a debt for which the property may be sold.
A ratio that is calculated by dividing the amount to be borrowed by the appraised value of the property. LTVs are used to qualify borrowers for mortgages. Generally, the lower the LTV, the better.
The price that a property could potentially be sold for on the open market.
Principal, Interest, Taxes and Insurance (PITI)
These are the four components of a mortgage payment.
An initial fee charged by a lender. Each point is equal to 1% of the loan amount.
The amount of a loan that interest is paid on. It is the original amount borrowed.
Private Mortgage Insurance (PMI)
Insurance that many lenders require borrowers to purchase if the borrower is unable to put down at least 20% of the value of the loan. PMI can be included in the monthly mortgage payments.
Truth in Lending (TIL)
A document that is sent to a borrower from the lending institution within three days of applying. A TIL includes certain disclosures such as finance charges, APR, total of payments, and total sales price.
Insurance that protects the owner and/or lender from losses arising from defects in the title to a parcel of real estate.
Veteran Administration (VA)
A loan that is made by an approved lender, but is guaranteed by the Department of Veterans Affairs.