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Mortgage Glossary:

Adjustable Rate Mortgage (ARM) – A mortgage that permits the lender to adjust its interest rate periodically on the basis of movement in a specified index.

 Amortization – The gradual reduction of a debt by means of periodic payment sufficient to pay principal and interest and thereby liquidate the debt.

 Amortization Schedule – A table that outlines the schedule of loan repayment.  It shows the amount of principal and interest due at regular intervals.  It also shows the unpaid balance of the loan remaining after each payment.

 Annual Percentage Rate (APR) – A term used in the Truth in Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan.

Appraisal – An estimate of value on real property and the process of preparing such an estimate.

 Appraised Value – An estimate of property value made by a qualified expert.  The expert, called an appraiser, is qualified by his education, training, and experience.

 Appraiser – A person engaged in the procedures of estimating the value of property. 

 Appreciation – An increased value of property due to either a positive improvement of the area or the elimination of negative factors.

 Balloon Note – A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “balloon payment” is due at maturity.

 Bankrupt – A person, firm or corporation, who, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court appointed trustee, for the protection of creditors.

 Broker – Generally, a special agent who acts as an intermediary between other parties and assists in negotiating agreements between them.

 Buy Down – Refers to when the lender is paid a certain fee in order to reduce the interest rate or monthly payments on a mortgage.  The reduction may be temporary or long term depending on the agreement.  Buy down fees can be paid by the seller or the lender in special lender paid Buy down programs.

 Cap – A term used in adjustable rate mortgages.  Caps limit the increase or decrease allowed in the interest rate or monthly payment.  Normally, there is a cap in effect per adjustment and also a “lifetime” cap that limits the amount of increase over the life of the loan.

 Cash-out Refinance – A refinancing 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. 

Closing – The conclusion or consummation of a transaction.  In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

 Closing Costs – Expenses incidental to a sale of real estate or refinance of an existing loan, such as loan fees, title fees, appraisal fees, etc.

 Closing Date – The date established by contractual agreement for the transferring of title.

 Closing Statement – A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance for the escrow account.

 Co-Borrower – The co-borrower is as equally responsible for repayment as the borrower and has an interest in the title of the property.

 Conventional Loan – A mortgage loan neither insured by FHA nor guaranteed by VA.

 Co-Signer – One who voluntarily binds himself to be obligated for the debt or obligation.  He is equally responsible for the payments, but has no interest in the title of the property.

Credit Rating – An evaluation of one’s ability to repay a loan.  It is based on current financial situation as well as past performance in debt repayment, taking into account any defaults, and history of slow or delinquent payments.

 Debt-To-Income Ratios – Calculations that are used in determining whether a borrower can qualify for a mortgage.  They consist of two separate calculations:  A monthly housing-expense-to-income-ratio and a total obligations-to-income ratio.

 Deed – A written document by which the ownership of land is transferred from one party to another.

 Down Payment – The difference between the sales price of real estate and the mortgage amount.

 Earnest Money Deposit – Money paid by the purchaser of real estate when the buyer and seller reach an oral agreement for the sale of the property to show that the buyer’s offer is being made in “good faith”.

 ECOA (Equal Credit Opportunity Act) – ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

 Escrow Account – The segregated trust account in which escrow funds are held.

 Escrow Payment – That portion of a mortgagor’s monthly payment held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

 Fannie Mae – Federal National Mortgage Association

 First Lien – A lien which takes priority over all other liens.  A tax lien, for example, is a first lien and takes priority over all other liens… including the mortgage note.

 Fixed Rate Mortgage – A mortgage that provides for only one interest rate for the entire term of the mortgage.  If the interest rate changes because of enforcement of the due-on-sale provision, the mortgage is still considered a fixed rate mortgage.

 Flood Insurance – Insurance indemnifying against loss by flood damage.  Required by lenders (usually banks) in areas designated (federally) as potential flood areas.  The insurance is private but federally subsidized.

 Foreclosure – An authorized procedure taken by a mortgagee or lender, under the terms of a mortgage or deed of trust for the purpose of having the property applied to the payment of a defaulted debt.

 Gross Income – Refers to the borrower’s total stable and verifiable income before taxes and monthly living expenses are deducted.

 Hazard Insurance – Insurance coverage that compensates for physical damage by fire, wind, or other natural disaster, to the property.

 Home Equity Line of Credit Loan – A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.

 Joint Tenancy – An equal undivided ownership of property by two or more persons, the survivors to take the interest upon the death of any one of them.

 Lease – A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

 Loan Submission – A package of pertinent papers and documents regarding specific property and purchaser(s).  It is delivered to a prospective lender for review and consideration of making a mortgage loan.

 Loan-To-Value Ratio (LTV) – The relationship between the amount of the mortgage loan and the appraised value of the security, expressed as a percentage of the appraised value or sales price, whichever is lower.

 Monthly Payment – Generally, the total payment made by the mortgagor each month.  However, this item is also used to mean the monthly fixed installment for ARMs.

 Mortgage – A conveyance of an interest in real property given as security for the payment of a debt.

 Mortgagee – A person or firm to whom property is conveyed as security for a loan made by such person or firm.

Mortgagee Clause – A clause attached to a hazard (homeowner’s) policy that stipulates that the mortgagee (lender) receives enough insurance proceeds to pay off the remaining debt in the event of a covered loss. 

Mortgagor – One who borrows money, giving as security a mortgage or deed of trust on real property (a debtor).

 Net Worth – The value of all of a company’s or individual’s assets (including cash) less its total liabilities.  It is used to indicate financial strength.

 No Cash-Out Refinance – A refinancing transaction in which the mortgage amount is limited to the sum of the unpaid principal balance of the existing first mortgage, closing costs (including prepaid items), points, and the amount required to satisfy any mortgage liens that are more than one year old.

 Origination Fee(s) – The fee(s) charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property.  The fee(s) are usually computed as a percentage of the face value of the mortgage.

 PITI – Stands for principal, interest, taxes, and insurance; the four costs normally included in a monthly mortgage payment.  The principal and interest portion goes to the lender to reduce the debt, while the taxes and insurance to into an escrow account to pay for those items as they come due.

 Point – An amount equal to 1 percent of the principal amount of an investment or note.  Loan discount points are a one time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments. 

Prepayment Fee – A consideration paid to the mortgagee for the prepayment privilege.  Also known as prepayment penalty or reinvestment fee.  Applies only to promissory notes containing a prepayment penalty clause.

 Prime Rate – The interest rate that commercial banks set as their base lending rate.  This rate is set separately by banks and is closely watched as an indicator of general trends in interest rates.

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

 Private Mortgage Insurance (PMI) – Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

 Refinancing – The repayment of a debt from the proceeds of a new loan using the same property as security.

 Rescission – Cancellation of a contract or transaction.  “Right of Rescission” refers to the three days a borrower has to rescind or cancel a refinance transaction.  Funding does not occur until the rescission period expires.

 Second Mortgage – A mortgage that has a lien position subordinate to the first mortgage.

 Settlement Costs – A term sometimes used interchangeably with closing costs.  Includes closing costs plus the down payment and pre-paid items such as escrow funds for taxes and insurance.

 Tax Lien – A claim on an individual’s property by local, state or federal government for the amount of due and unpaid taxes.

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

 Variable Rate Mortgage – A mortgage agreement that allows for adjustment of the interest rate in keeping with the fluctuating market and terms agreed on in the note.

 If you have questions or would like help with your mortgage, you can call us at (770) 339-3375.

We can help you find the lender (mortgage bank) that can get you the best deal for your financial situation (including setting you up with the best financing rates and loan term).

Georgia Residential Mortgage Broker License Number 17321.