Dictionary - Mortgages
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate.These loans are also called variable-rate mortgages or floating-rate mortgages. Read more

Amortization

In lending, amortization refers to paying off a debt through periodic payments, where each payment pays the periodic interest on the remaining balance and a portion of the loan principal. Read more

Amortization Schedule

An amortization schedule is a chart that shows the amounts of principal and interest due for each loan payment of an amortizing loan.An amortizing loan is a loan that requires regular payments, where each payment is the same total amount. Read more

Back-End Ratio

Banks use the back-end ratio to determine whether a mortgage applicant is a good credit risk.The formula for the back-end ratio, generally, is: Back-End Ratio = (All monthly loan payments + requested loan’s monthly principal and interest payment + monthly property taxes on proposed real estate + monthly homeowners insurance premium)/Gross monthly income For example, let’s assume John Doe wants to get a $500,000 mortgage that comes with a principal and interest payment of $2,400. Read more

Balloon Mortgage

A balloon mortgage is a mortgage with a large payment made near or at the end of a loan term. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally during the life of the loan -- most or all of a balloon mortgage's principal is paid in one sum at the end of the term. Read more

Buydown

A buydown, also known as paying points, is a way to lower the interest rate on a mortgage. Let's say John Doe wants to borrow $100,000 to buy a house from Jane Smith. Read more

Canadian Rollover Mortgage

A Canadian rollover mortgage is an adjustable-rate mortgage commonly available to homebuyers in Canada. An adjustable-rate mortgage (ARM) is a mortgage in which the interest rate varies. Read more

Case-Shiller Home Price Index

The Case-Shiller Home Price Index refers to a set of indices released by Standard and Poor's that tracks changes in the value of residential real estate. There are several "Case-Shiller" indices to track changes in a variety of markets. Read more

Cash Out Refinance

A cash out refinance (also called a cash out refinance loan or cash out refinance mortgage) is a type of mortgage loan that lets you to turn the equity you have in your home into cash, similar to a home equity loan or HELOC.A cash out refinance offers a low-interest way to borrow money for anything, including to pay off credit card debt, make home improvements, go to college, or buy a car.  Cash out refinance loans are attractive to homeowners because they can offer annual percentage rates (APRs) that are half as high as credit cards or personal loans, which can save borrowers tens of thousands of dollars in interest charges over several years. Read more

Closing Costs

Closing costs are fees and expenses paid by both the buyer and the seller when a transaction is completed.Closing costs are common expenses in real estate transactions. Read more

Down Payment

A down payment is the initial payment a borrower puts toward a large purchase, and is usually a specified percentage of the total purchase price.Down payments are typically used for real estate, cars and other big-ticket items that are not usually paid in full at the time of purchase; the remainder of the purchase amount is paid back over time through a loan. Read more

Escrow

Escrow is a financial arrangement whereby a third party holds funds in safekeeping pending the completion of a contract or other obligation. For example, let's assume a situation where someone is purchasing a home. Read more

Escrow Account

In the real estate world, mortgage companies use escrow accounts to collect property taxes, homeowners insurance, private mortgage insurance and other payments that are required by the homeowner but are not part of principal and interest.Escrow accounts are also called impound accounts. Read more

Fannie Mae (FNMA)

Fannie Mae (OTC: FNMA) is the nickname for the Federal National Mortgage Association (FNMA).Established in 1938, Fannie Mae's purpose is to create a secondary market for the purchase and sale of mortgages. Read more

Federal Home Loan Mortgage Corporation (Freddie Mac)

The Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") is a government-sponsored entity that buys certain types of mortgages from banks and uses them to collateralize mortgage-backed securities.Freddie Mac also supplies a variety of periodic housing and mortgage data to the public. Read more

Federal Housing Administration Loan (FHA Loan)

Loans insured by the Federal Housing Administration (FHA) are designed for borrowers who can't qualify for a conventional mortgage. Read more

First-Time Homebuyer

A first-time homebuyer an individual or couple purchasing a home for the first time.The IRS also considers someone who has not owned a home in the past two years to be a first-time homebuyer. Read more

Fixed Interest Rate

A fixed interest rate is a type of loan or mortgage for which the rate of interest does not fluctuate over the life of the loan. The most common types of mortgages carry either a fixed or variable interest rate. Read more

Form 1098

Form 1098 is an IRS form that reports how much mortgage interest a taxpayer paid during the tax year. Let's say John Doe borrows $100,000 for a house from Bank XYZ. Read more

Fully Indexed Interest Rate

A fully indexed interest rate equals an adjustable-rate mortgage's (ARM) interest rate benchmark plus a spread.  The interest rate on an ARM corresponds to a specific benchmark (often the prime rate, but sometimes LIBOR, the one-year constant-maturity Treasury, or other benchmarks) plus a spread (also called the margin, and its size is often based on the borrower's credit score).The benchmark plus the spread equals the interest rate on the loan; it is called the fully indexed rate. Read more

Ginnie Mae (GNMA)

Ginnie Mae is the nickname for the Government National Mortgage Association.Ginnie Mae guarantees the timely payment of interest and principal on certain mortgage-backed securities (MBS). Read more

Half-Life

In the investing world, a half-life is the halfway point of mortgage repayment. Let's say John Doe borrows $100,000 to buy a house. Read more

High-Ratio Loan

A high-ratio loan is a mortgage that has a small down payment. Let's say John Doe wants to buy a $100,000 house. Read more

Home Equity

Home equity equals the value of a house less the balance owed on the homeowner's mortgage. Let's assume that John Doe pays $200,000 for a house. Read more

Home Equity Line of Credit (HELOC)

A home equity line of credit (or HELOC) is a flexible loan that lets you turn your home's equity into cash whenever you need it, up to a certain amount.A HELOC uses your home as collateral just like a home equity loan or cash out refinance, but works more like a credit card because it's revolving credit.  HELOCs are attractive to homeowners needing cash for spending or emergencies because they offer easy accessibility with the repayment flexibility of credit cards, but with annual percentage rates (APRs) that are half as high, potentially saving the borrower hundreds or thousands of dollars in interest charges over time. Read more

Home Equity Loan (HEL)

A home equity loan (HEL), also called a second mortgage, is a loan secured by the equity in a house.Equity equals the value of the house less the balance owed on the homeowner's mortgage. Read more

Home Loan

A home loan (or mortgage) is a contract between a borrower and a lender that allows someone to borrow money to buy a house, apartment, condo, or other livable property.A home loan is typically paid back over a term of 10, 15 or 30 years. Read more

Home Mortgage

A home mortgage is a loan secured for a house.The borrower is usually obligated to make a predetermined series of payments on the loan. Read more

Impound

In the real estate world, an impound is an account that mortgage companies use to collect property taxes, homeowners insurance, private mortgage insurance and other payments that are required by the homeowner but are not part of principal and interest.Impound accounts are also called escrow accounts. Read more

Interest Rate Ceiling

The term interest rate ceiling typically refers to the maximum lifetime interest rate charged on an adjustable rate mortgage according to the terms of a mortgage contract. A potential homebuyer contracts with a mortgage lender to secure a loan. Read more

Interest-Only ARM

An interest-only adjustable-rate mortgage (interest-only ARM) is a mortgage in which the borrower only pays the interest on the loan for a set period. There are two parts to an interest-only ARM that differentiate it from traditional mortgages. Read more

Interest-Only Mortgage

An interest-only mortgage is a mortgage in which the borrower only pays the interest on the loan for a set period. In general, an interest-only mortgage means the borrower only pays the interest on the loan for a set period. Read more

Jumbo Loan

A jumbo loan, also called a jumbo mortgage, is a mortgage that exceeds the maximum amount that will be guaranteed by a government-sponsored entity like Fannie Mae. Once a loan is made between from a bank to a home buyer, the loan is typically sold into the secondary market.  The largest buyers of these loans in the secondary market are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), both government-sponsored enterprises created to provide liquidity to banks.  Fannie Mae and Freddie Mac follow guidelines for loan terms set by the Office of Federal Housing Enterprise Oversight OFHEO). Read more

Junior Mortgage

A junior mortgage is a loan secured by the equity in a house.Equity equals the value of the house less the balance owed on the homeowner's first (or in some cases, preceding) mortgages. Read more

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is a calculation that helps lenders measure mortgage risk.The formula to calculate the loan-to-value ratio is: Loan to value = Mortgage amount / Appraised value of property For example, let's say Jane Doe wants to buy a house for $500,000. Read more

Making Home Affordable (MHA)

Making Home Affordable is a government program designed to help homeowners avoid foreclosure. The Making Home Affordable program is actually a collection of several programs: Home Affordable Modification Program (HAMP) Principal Reduction Alternative SM (PRA) Second Lien Modification Program (2MP) FHA Home Affordable Modification Program (FHA-HAMP) USDA’s Special Loan Servicing Veterans Affairs Home Affordable Modification (VA-HAMP) Home Affordable Foreclosure Alternatives Program (HAFA) Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP) Home Affordable Refinance Program (HARP) FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance) Home Affordable Unemployment Program (UP) Hardest Hit Fund (HHF) These programs have a variety of qualification guidelines and requirements, but in general they seek to lower homeowners' monthly loan payments, lower the interest rate on homeowners' mortgages, and help homeowners adjust the principal balances on their mortgages if necessary. Read more

Mortgage

Homeownership is a cornerstone of the American Dream.A home is a valuable asset for most people, and mortgages (or home loans) make buying one possible for many Americans. Read more

Mortgage Accelerator

A mortgage accelerator is a type of checking account that allows a borrower to repay a mortgage more quickly using the balance of monthly paychecks as opposed to recurring monthly payments. Common in the United Kingdom and Australia, a mortgage accelerator is a checking account connected directly to a mortgage account. Read more

Mortgage Allocations

Mortgage allocations refer to the specific mortgage information given to an MBS buyer by an MBS seller. Mortgage-backed securities (MBS) trade in the secondary market as to-be-announced trades. Read more

Mortgage Application

A mortgage application is a document that a prospective property buyer submits to a lender to secure a mortgage.The lender must approve the application before any money is lent. Read more

Mortgage Banker

A mortgage banker is a person or entity who lends mortgages. A mortgage banker may be a sole agent or larger institution that originates mortgages to property buyers in exchange for a commission. Read more

Mortgage Bond

A mortgage bond uses a mortgaged property as collateral. A mortgage bond is collateralized by one or several mortgaged properties. Read more

Mortgage Broker

A mortgage broker is an agent who connects property buyers with mortgage lenders. A mortgage broker acts as a professional intermediary on a property buyer's behalf. Read more

Mortgage Cash Flow Obligation (MCFO)

A mortgage cash flow obligation (MCFO) is a debt security that uses payments on a series of mortgages to fund principal and interest payments to MCFO holders. An MCFO pays interest and principal payments at a specified rate similar to a bond. Read more

Mortgage Forbearance Agreement

A mortgage forbearance agreement is a contractual arrangement between a mortgage lender and a borrower to help the borrower catch up on payments when he/she is behind schedule. A borrower makes monthly payments of principal and interest over the term of the mortgage (usually 30 years). Read more

Mortgage Fraud

Mortgage fraud refers to an applicant's untruthful representation of information on a mortgage application. Mortgage applications ask for a variety of details concerning an applicant's financial position. Read more

Mortgage Interest

Mortgage interest is the compensation a borrower pays a lender for money used to purchase property. Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the principal. Read more

Mortgage Interest Deduction

A mortgage interest deduction allows mortgage borrowers to reduce their income tax liability by listing the amount of mortgage interest paid as an itemized deduction. Each year, a mortgage borrower pays a combination of interest and principal to the lender. Read more

Mortgage Life Insurance

Mortgage life insurance is an insurance policy which fully repays the balance of a mortgage in the event the borrower dies. Mortgages have long-term horizons -- usually 30 years. Read more

Mortgage Points

Mortgage points (also called interest rate points or discount points) are fees you can pay to a lender at closing to lower your mortgage's interest rate -- or annual percentage rate (APR).The cost of each point is equal to one percent of the loan amount. Read more

Mortgage Rate

A mortgage rate is the rate of interest a borrower pays on his or her mortgage. Mortgage rates can be either fixed or variable. Read more

Mortgage Rate Lock

A mortgage rate lock is the term in a mortgage contract that stipulates the rate the borrower will pay for the entire duration of the mortgage. When a mortgage originator finds a competitive rate for a borrower, the rate is based on current interest rates. Read more

Mortgage Rate Lock Deposit

A mortgage rate lock deposit is a sum of money that a borrower must pay the lender to lock in a specific interest rate until a borrower's mortgage is approved and given out. When a mortgage originator finds a mortgage rate for a borrower, the offering lender often charges the borrower a fee to hold that rate until his mortgage application has been approved. Read more

Mortgage Rate Lock Float Down

A mortgage rate lock float down is a provision that allows a borrower to obtain a lower rate if interest rates decline during the process of applying for a mortgage. Lenders usually allow those applying for a mortgage to lock in a specific mortgage rate using a mortgage rate lock. Read more

Mortgage Servicing Rights (MSR)

Mortgage servicing rights (MSR) is an arrangement by which a third party promises to collect and disseminate mortgage payments in exchange for a fee. Mortgage payments are processed continually over the entire term of a mortgage. Read more

Mortgage Short Sale

A mortgage short sale is the sale of a mortgaged property for less than the remaining value of the mortgage itself. In a weak housing market, it is common for the outstanding mortgage balance on a property to exceed the market value of the property itself. Read more

Mortgagee

A mortgagee is a lender in a mortgage, usually a bank, credit union, or other lending institution.A mortgagee lends money to a borrower for the purpose of purchasing real estate (usually a house) in a lending deal in which the lender serves as the mortgagee and the borrower is known as the mortgagor. Read more

National Association of Mortgage Brokers (NAMB)

The National Association of Mortgage Brokers (NAMB) is an industry trade group representing mortgage brokers. Founded in 1973, the NAMB's primary objective is to promote ethics and professionalism among mortgage brokers. Read more

Negative Points

For mortgages, negative points are a strategy for qualified borrowers to decrease the amount of cash they need upfront to finance their home.A mortgage company will pay fees and closing costs on the borrower’s behalf (in the form of points) in exchange for a higher interest rate on the mortgage.  Negative points are also known as rebates, yield spread premiums, or no-cost mortgages. Read more

Negatively Amortizing Loan

Negatively amortizing loans are loans in which the loan's principal balance (usually a mortgage) increases even though the borrower is making payments on the loan. For example, let's assume that John Doe wants to borrow $100,000 from Bank XYZ to buy a house. Read more

Occupancy Fraud

Occupancy fraud occurs when a mortgage borrower lies to a bank about his or her intention to occupy the home that he or she is purchasing with the mortgage. For example, let's say John lives in Denver. Read more

Offset Mortgage

An offset mortgage is a mortgage held in the same bank as the borrower's deposit accounts, savings accounts or other accounts.The mortgage payments are calculated based on the borrower's combined balance. Read more

PMI - Private Mortgage Insurance

Private mortgage insurance (PMI), also called mortgage insurance, is what borrowers must pay on each mortgage payment if they didn't make a 20 percent down payment toward their home loan.The insurance protects the lender financially in case the borrower fails to repay. Read more

Price Level Adjusted Mortgage (PLAM)

A price level adjusted mortgage (PLAM) is a mortgage with a fixed interest rate but an adjustable principal balance. For example, let's assume you take out a traditional 30-year, $100,000 mortgage at 7%. Read more

Prime Rate

The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations. Anyone who has borrowed money knows that different banks charge different interest rates. Read more

Principal, Interest, Taxes and Insurance (PITI)

The sum total of a mortgage payment is comprised of principal, interest, taxes, and insurance (PITI).The amount of principal paid, interest paid, property taxes, and homeowners insurance is broken down on a monthly basis to determine what the borrower’s monthly outlay would be. Read more

Qualification Ratio

A qualification ratio is actually two ratios that banks use to determine whether a borrower is eligible for a mortgage.The two ratios generally are: Total Borrower Debt/Monthly Income Borrower's Total Monthly Debt Payments/Monthly Income For example, let's assume that Borrower X has $4,000 of monthly income and $30,000 of student loans and credit card debt, on which he pays $600. Read more

Qualified Mortgage Insurance Premium

A qualified mortgage insurance premium is a payment to insure a homeowner’s mortgage payments. Let’s say John and Jane Doe buy a house. Read more

Qualifying Ratios

Qualifying ratios are ratios banks use to determine whether a borrower is eligible for a mortgage.  The two qualifying ratios banks generally use are: Total Borrower Debt / Monthly Income and Borrower's Total Monthly Debt Payments / Monthly Income For example, let's assume that Borrower X has $4,000 of monthly income and $30,000 of student loans and credit card debt, on which he pays $600.Borrower X wants an 8%, 30-year, $250,000 mortgage. Read more

Quiet Title

Quiet title is the name of a legal action intended to ensure that the owner of a property is in fact the real owner and that the property has no other ownership claims on it.To do this is known as quieting the title. Read more

Rate and Term Refinance

A rate and term refinance occurs when a borrower replaces one mortgage with another mortgage that has a different maturity and interest rate. For example, let's say John Doe bought a house 10 years ago for $250,000. Read more

Real Estate Agent

A real estate agent, working on behalf of a licensed real estate broker, is a licensed professional who works on behalf of the buyer and seller of real estate during a sales transaction. A real estate agent, working on behalf of a real estate broker, acts as an intermediary between sellers and buyers. Read more

Reverse Mortgage

A reverse mortgage is an arrangement whereby a homeowner borrows against his or her home equity and receives regular payments from the lender until the total payments reach a predetermined limit. To qualify for a reverse mortgage, a prospective borrower must be at least 62 years old and own his or her residence. Read more

Second Mortgage

Also called a home equity loan, a second mortgage is secured by the equity in a house.Equity equals the value of the house less the balance owed on the homeowner's mortgage. Read more

Secured Debt

Secured debt is debt that is collateralized. Mortgages are the most common example of secured debt: the bank lends you the money and the bank has the house as collateral. Read more

Teaser Rate

A teaser rate is usually an artificially low initial interest rate on an adjustable-rate mortgage (ARM). The interest rate on the ARM corresponds to a specific benchmark (often the prime rate, but sometimes LIBOR, the one-year constant-maturity Treasury, or other benchmarks) plus an additional spread (which is also called the margin, and its size is often based on the borrower's credit score). Read more

Troubled Asset Relief Program (TARP)

The Troubled Asset Relief Program (TARP) is a U.S.government program created in an attempt to mitigate the fallout from the subprime mortgage crisis of 2007-2008.  The subprime mortgage crisis came to the forefront of the U.S. Read more

Underwater

In the real estate world, underwater means that a property is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. Read more

Underwater Mortgage

An underwater mortgage is a mortgage on a property that is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. Read more

Underwriter

Whenever you apply for a major loan or an insurance policy, your personal data will often go before an underwriter.Although you may never meet them, these specialists have a lot of control over whether you’re approved for a mortgage or life insurance policy. Read more

Vacation Home

A vacation home is a house that the owner uses only a few days or weeks per year. Let's say John Doe lives in Minneapolis. Read more

Warehouse Lending

Warehouse lending is credit provided to a mortgage lender to fund mortgages until the lender sells them in the secondary market. Let's say John Doe goes to Bank XYZ to borrow $200,000 to buy a house. Read more

Warranty Deed

A warranty deed is a real estate document which states that the owner owns the purchased property free and clear of any outstanding mortgages, liens, or other types of encumbrances against it.  A general warranty deed legally transfers property from one individual or business to another (in most cases for real estate).They’re usually put in place when a grantee is looking to secure financing for mortgage or title insurance.  Grantor vs. Read more

Wet Loan

A wet loan is a mortgage in which the borrower gets the funding before all the paperwork is done. Let's assume John Doe wants to buy the house for sale at 123 Main Street. Read more