Mortgage Glossary

Click on a letter or word to view the definitions.

margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

market value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

mortgage life insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

mortgagee
The lender.

mortgagor
The borrower or homeowner.

negative amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

net effective income
The borrower's gross income minus federal income tax.

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

note rate
The interest rate stated on a mortgage note.

no-cost loan
Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

original principal balance
The total amount of principal owed on a mortgage before any payments are made.

origination fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

owner financing
A property purchase transaction in which the property seller provides all or part of the financing.

partial payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

PITI
This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

point
A point is 1 percent of the amount of the mortgage.

prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

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

pre-qualification
This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

prime rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

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

qualifying ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

real estate agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

real estate settlement procedures act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

recording fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

revolving debt
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due. Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

second mortgage
A mortgage that has a lien position subordinate to the first mortgage.

secured loan
A loan that is backed by collateral.

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

simple interest
Interest which is computed only on the principle balance.

survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

sweat equity
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

third-party origination
When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

title
A document that gives evidence of an individual's ownership of property.

title insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

truth-in-lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

trustee
A fiduciary who holds or controls property for the benefit of another.