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You may either scroll this page of financial terms and definitions or use the letters above to locate a specific financing term. Simply click the letter that correspond to the first letter of the term for which you are searching.

-A-

Adjustable Rate Mortgage

A loan that allows the lender to adjust the borrower's interest rate and payments at prescribed times and sometimes with prescribed limits.

Amortized Loan

A loan which is paid off in equal installments during its term.

Annual Percentage Rate (APR)

The actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan.

Appraisal

An estimate of real estate value, usually issued to the standards of FHA, VA, FNMA. Recent comparable sales in the neighborhood are the most important factor in determining value.

Assumable Mortgage

Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

-C-

Closing Costs

Expenses incurred in the closing of a real estate or mortgage transaction. Purchaser's expenses normally include cost of title examination, premiums for title policies, survey, attorney fee, lender's service fee, and recording charges. In addition, the purchaser may have to place in escrow a sum of money to cover accrued real estate taxes and insurance.

Conventional Mortgage

A loan neither insured by the FHA nor guaranteed by the VA.

-D-

Down Payment

The partial payment of the selling price made by the buyer. This payment is calculated as a percentage of the selling price of the house. The percentage that you put down plays a vital role in determining your eligibility for a mortgage as well as the interest rate available to you.

-E-

Equity

The difference between the market value of property and the homeowner's indebtedness (mortgage).

Escrow Payment

That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due, known as impounds in some states.

Exchange

The trading of an equity in a piece of property for the equity of another.

-F-

Fannie Mae

Nickname for Federal National Mortgage Association (FNMA), a tax paying corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Fixed Rate Mortgage

A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

Freddie Mac

Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

-G-

Graduated Payment Mortgage

An FHA, VA, or Conventional loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life.

-I-

Investor

The holder of a mortgage or the permanent lender for whom the mortgage banker services the loan. Any person or institution that invests in mortgages.

-L-

Lease Purchase Agreement

Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.

Loan to Value Ratio

The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value (selling price). On a $100,000 home, with a mortgage loan principal of $80,000, the loan value ratio is 80%.

-M-

Mortgage/Deed of Trust

Pledge of real property to secure a debt by a written instrument given by the mortgagor. Should be recorded in the County Recorder's Office.

Mortgage Insurance Premium (MIP)

The consideration paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance (PMI) company. This insurance protects the investor from possible loss in the event of a borrower's default on a loan.

Mortgagee

The lender of money or the receiver of the mortgage document.

Mortgagor

The borrower of money or the giver of the mortgage document.

-N-

Note

A written promise to pay a certain amount of money.

-O-

Origination Fee

A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.

-P-

Point

One percent of loan amount.

Prepayment Penalty

A fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.

Prepayment Privilege

The right given to a purchaser to pay all or part of a debt prior to its maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.

Private Mortgage Insurance (PMI)

Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

-R-

Rent with Option

A contract which gives one the right to lease property at a certain sum with the option to purchase at a future date.

-S-

Second Mortgage/Second Trust

Junior Mortgage or Junior Lien; an additional loan imposed on property with a first mortgage. Generally at a higher rate and shorter terms than a "first" mortgage.

Straight Loan

A loan with periodic payments of interest only; the principal sum due in one lump sum upon maturity.

-T-

Title

Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property; the owners and others.

Title Insurance

An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.

Title Search

An examination of legal records to check the validity and completeness of the title to the property. The title search should uncover any liens, overdue assessments or other claims against the property.