Glossary of terms

Adjustable-rate Mortgage (ARM). A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specific index.

Amortization. The gradual repayment of a mortgage by installments.

Appraisal. A professional opinion of the market value of a property.

Assessed value. The valuation placed upon property by a public tax assessor for the purposes of taxation.

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

Contingency. A condition that must be met before a contract is legally binding.

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.

Deed. The legal document conveying title to a property.

Default. The failure to make a mortgage payment on a timely basis or to otherwise comply with other requirements of a mortgage.

Delinquency. A loan in which a payment is overdue but not yet in default.

Down Payment. The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Earnest money. A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Equity. A homeowner’s financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.

Escrow. The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

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

Interest Rate. The percentage of an amount of money which is paid for its use for a specific time; usually expressed as an annual percentage.

Late Charge. An additional charge a borrow is required to pay as penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.

Lien. A legal encumbrance or claim of one person on the property of another as security for a debt or charge.

Loan. The letting out or renting of money by a lender to a borrower to be repaid with or without interest.

Loan Closing. A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory not and mortgage, are signed.

Loan to Value. Mathematical computation that compares the loan amount to the value of the property.

LTV. See Loan to Value

Market Value. An estimate of the highest price a property would sell within a reasonable period of time, on the open market under normal conditions, and between a willing, ready and able buyer and seller.

Mortgage Banker. An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers.

Mortgage Broker. An individual or firm that acts as an agent for both the borrower and the lender of a mortgage loan. The brokers places the borrower and the lender in contact with each other, and receives a commission from the borrower if a loan results. Unlike a mortgage banker, a mortgage broker does not negotiate the terms of the loan, issue a loan, prepare the loan documents or service the loan.

Mortgagee. The institution, group or individual that lend money on the security of pledged real estate; the association, the lender.

Mortgage Guaranty Insurance Premium. The amount paid by a mortgagor for mortgage guaranty insurance either to the FHA or a private mortgage guaranty insurance company.

Note. A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called "promissory note."

Offer to Purchase. A document completed by a home buyer specifying the terms and conditions under which real estate will be purchased.

Origination Fee. The fee that the lender charges the borrower to cover the cost of issuing a loan commitment.

Points. An amount equal to one percent of the principal amount of a note. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage to a competitive position with other types of investments.

Prepayment Penalty. A penalty under a note, mortgage or deed of trust imposed when the loan is paid before its maturity date.

Principal Balance. The outstanding balance of a mortgage, exclusive of interest and any other charges. The capital sum of a loan.

Principal Interest Real Estate Tax Insurance. The total mortgage payments which includes principal, interest, taxes and insurance.

Sales Contract. A written agreement between competent parties stating all terms and conditions of a sale.

Settlement Statement. The complete breakdown of costs involved in the real estate transaction for both the seller and buyer.

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 improvements.

Tax Lien. A lien on a property by local, state or federal government for the amount due and unpaid taxes.

Title Insurance Policy. A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects or title to real estate, where the insured has an interest as owner, mortgagee or otherwise.

Truth-in-Lending Act. Federal legislation that provides borrowers with specific information on the cost of obtaining credit.

Underwriting. In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant's creditworthiness and ability to repay the loan. The underwriter analyzes the risks involved and selects an appropriate loan term and interest rate.

Yield. The effective rate or return on an investment based upon the fees, the rate of interest and the price paid for the mortgage.