Mortgage Glossary - A to G

- 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

- A -
ACCELERATION CLAUSE: A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance under certain conditions.

ADJUSTABLE-RATE MORTGAGE (ARM): A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

AMORTIZATION: The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.

AMORTIZATION SCHEDULE: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.

ANNUAL PERCENTAGE RATE (APR): The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and other costs that may be paid by the borrower.

APPRAISAL: A professional opinion or estimate of market value of a property.

APPRECIATION: An increase in the value of a property due to changes in market conditions or other causes.

ASSESSED VALUE: The valuation placed upon property by a public tax assessor used to calculate property taxes.

ASSUMABLE MORTGAGE: A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

ASSUMPTION: The transfer of the seller's existing mortgage to the buyer.

- C -
CAP An ARM: loan provision that limits the increase or decrease of an interest rate adjustment.

CASH RESERVE: A requirement of some lenders that buyers have sufficient cash remaining after closing equivalent to months' mortgage payments.

CLEAR TITLE: A property deed that is free of liens or legal question as to ownership of property.

CLOSING: A meeting at which the sale of a property is finalized by delivery of a deed from the seller to the buyer and by the buyer's signing the mortgage documents and paying closing costs. Also called "settlement."

CLOSING COSTS: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."

COMMITMENT LETTER: A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

CONDOMINIUM: A form of property ownership in which the home owner holds title to an individual dwelling unit, an undivided interest in common areas of a multiunit project, and sometimes the exclusive use of certain limited common areas.

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

CONVENTIONAL MORTGAGE: Any mortgage that is not insured or guaranteed by the federal government.

CONVERTIBLE ARM: An ARM that can be converted to a fixed-rate mortgage under specified conditions.

COOPERATIVE: A type of multiple ownership in which the residents of a multiunit housing complex own shares in a corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

COVENANT: A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

CREDIT REPORT: A report of an individual's credit history prepared by a credit bureau or consumer reporting agency and used by a lender in determining a loan applicant's creditworthiness.

- D -
DEED: The legal document conveying title to a property.

DEED OF TRUST: The document used in some states instead of a mortgage that gives the lender a security interest in the property. Title is conveyed to a trustee by the borrower (who retains equitable title). When the debt is paid in full, title is reconvened to the borrower.

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

DELINQUENCY: A situation in which a loan payment has not been made by its due date.


DEPRECIATION: A decline in the value of property; the opposite of "appreciation."


DOWN PAYMENT: The part of the purchase price that the buyer pays in cash and does not finance with a mortgage.

DUE-ON-SALE CLAUSE: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

- E -
EARNEST MONEY: A deposit made by the potential home buyer to show that he or she is serious about buying the property.

EASEMENT: A right of way giving persons other than the owner access to a property.

EQUAL CREDIT OPPORTUNITY ACT: A federal law that prohibits lenders from discriminating on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

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 mortgages.

EQUITY LOAN: A loan based on the borrower's equity in his or her home.

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.

- F -
FAIR CREDIT REPORTING ACT: A consumer protection law that regulates the disclosure of consumer credit reports by consumer credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

FHA MORTGAGE: A mortgage that is insured by the Federal Housing Administration. Also referred to as a "government" mortgage.

FHA TITLE I HOME IMPROVEMENT LOAN: A loan that may be used to finance modest home improvements when homeowners have little equity in their property. This loan is generally based on the creditworthiness of the borrower, rather than the equity in the home.

FIRST MORTGAGE: A mortgage that has first claim to the secured property in the event of default.

FIXED-RATE MORTGAGE: A mortgage in which the interest rate does not change during the entire term of the loan.

FLOOD INSURANCE: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

FORBEARANCE: The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

FORECLOSURE: The legal process by which a mortgaged property may be sold when a mortgage is in default.

- G -
GRADUATED-PAYMENT MORTGAGE: A mortgage that starts with low monthly payments that increase at a predetermined rate for a specified time. The initial monthly payments are set at an amount lower than that required for full amortization of the debt.