Mortgage terminology. Loan jargon. The language used in the loan process can be confusing if you're new to it. This Premier Mortgage Dictionary is your one-stop resource for user-friendly definitions to our most commonly used terms.

Mortgage Glossary - A -

Accrued Interest
Interest earned but not yet paid.

Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjusted Gross Income
A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions and expenses.

Ad Valorem Tax
A tax based according to item value only, usually property tax based on the just or fair market value of the property.

Addendum
A change made to a contract.

Adjustable Rate Mortgage Loans (ARM)
Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as Treasury bill rates. An interest rate cap limits the amount by which the interest rate can change.

Adjustment Period
On an ARM loan, the time between changes in the interest rate or monthly payment.

Agreement of Sale
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Amortization
Repayment of a debt with periodic payments of both principal and interest calculated to payoff the loan 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 remaining balance.

Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate. The annual percentage rate is often not the same as the interest rate. It will be higher than the interest rate stated in the note because it includes in addition to the interest rate, loan discount points, fees and mortgage insurance.

Application
An initial statement of personal and financial information required to apply for a loan.

Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

Application Fee
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal and credit report.

Appraisal
A written estimate of a property's current market value completed by an impartial party with knowledge of real estate markets.

Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.

Mortgage Glossary - B-

Back-end ratio or back ratio
The sum of the house payment and all other monthly debt -- credit cards, car payments, student loans and the like -- divided by before-tax income. Traditionally, lenders were loath to extend borrowers' back-end ratios past 36 percent, but they often do now.

Balloon mortgage
A loan that has regular monthly payments which amortize over a stated term but call for a final lump sum (balloon payment) at the end of a specified term, or maturity date, such as 10 years.

Balloon payment
A loan installment that is larger than the other, periodic payments and pays off the remaining principal.

Bankruptcy
A legal proceeding in a federal court to relieve certain debts of a person or a business that is unable to pay its debts. Chapter 7 bankruptcy gets rid of all debts. Chapter 13 allows a borrower with and income to pay bills off over a set period of time.

Bearer
The legal owner of a piece of property.

Bequest
A gift of personal property by will.

Bill of sale
A document that spells out the transfer of property.

Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.

Blanket Mortgage
A mortgage that covers more than one parcel of real estate.

Bona Fide
In good faith.

Borrower (Mortgagor)
An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Broker
An individual who brings buyers and sellers together and assists in negotiating contracts for a client.

Buy-Down Mortgage
A mortgage loan with a less than market rate for a set period of time.

Buyer's Market
Market conditions that favor buyers. With too few buyers and too many properties for sale, the sellers may be forced to make substantial price discounts.

Mortgage Glossary - C-

Call Option
A provision of a note, which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Caps (interest)
Caps limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan.

Caps (payment)
Consumer safeguards, which limit the amount monthly payments on an adjustable-rate mortgage may change.

Cash Out Refinancing
Money received when you get a new loan that is larger than the remaining balance of your current loan. This is based upon any equity that has been built up in the house.
The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.

Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in the closing of a mortgage transaction.

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Title
Written viewpoint of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.

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

Closing Costs
Money paid generally by the borrower in connection with the closing of a mortgage loan.

Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive

COFI
See Cost of Funds Index.

Collateral
Property (for example, your home) pledged as security for a debt.

Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

Commitment (loan)
A binding pledge to lend and a statement by the lender of the terms and conditions under which a loan is made.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer

Condominium
A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

Conforming Loan
A mortgage loan which meets all requirements to be eligible for sale and delivery to Federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $300,000 for a one-unit property.

Contingency
A condition which must be satisfied before a contract is legally binding.

Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conventional Loan
Loans that are not made under any government housing program; they are not subject to the restrictions of government insured housing programs, such as loan size limits.

Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates and there may be a charge for the conversion feature.

Convertible ARMs
A type of ARM loan that can be converted to a fixed-rate loan during a given time period.

Conveyance
The document used to affect a transfer, such as a deed or mortgage.

Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for sources of funds.

Covenant
A clause in a contract that obligates or restricts the parties and which, if violated, can result in a legal action.

Credit Bureau
A credit bureau is a clearinghouse for credit history information.

Credit Report
A report detailing the credit history of an individual.

Credit Score
A statistical model used in assessing an individual's creditworthiness information such as your current history, type of credit you use and late payments.

Mortgage Glossary - D -

Deed
Legal document conveying title to a property. The deed contains a description of the property, and is signed, witnessed and delivered to the buyer at closing.

Default
Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Delinquency
Failure to make payments as agreed in the loan agreement. The payment is overdue but default has not yet been declared.

Depreciation
A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discounted Loan
When the note rate on a loan is less than the market rate, it is a discounted loan. However, the lender requires additional points to raise the yield on the loan to the market rate.

Disclosure
Information that is required by law relevant to specific transactions

Discount Point
A point paid to the lender to permanently buy down or lower an interest rate. It is usually a percentage of the loan amount.

Down Payment
The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price

Mortgage Glossary - E -

Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith delivered with a purchase offer.

Easement
A right of way giving persons other than the property owner access to or over a property.

Encroachment
An improvement that illegally violates another's property or right to use that property.

Equifax
One of the three largest credit bureaus in the United States.

Equal Credit Opportunity Act (ECOA)
Federal law requiring 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 or past exercising or rights under the Consumer Credit Protection Act.

Equity
The difference between the current market value of a property and the total debt obligations against the property.

Escrow
A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. In some parts of the US escrow of taxes and insurance premiums are called impound or reserves.

Escrow Account
The segregated trust account in which escrow funds are held. The lender disburses escrow account funds on behalf of the borrower when they are due.

Escrow Agent
A person or organization with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.

Experian
One of the three largest credit bureaus in the United States.

Mortgage Glossary - F -

Fair, Isaac and Co.
The company that invented credit scoring software.

Fannie Mae
A common nickname for the Federal National Mortgage Association.

FDIC
See Federal Deposit Insurance Corporation.

Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

Federal Home Loan Mortgage Corporation -
(FHLMC, or Freddie Mac)
A Quasi government agency that buys conventional loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Federal National Mortgage Association (FNMA, or Fannie Mae)
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Fee Simple
Absolute ownership of real property giving the right to dispose or pass on the property.

FHA
See Federal Housing Administration.

FHA Loans
Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers.

FHLMC
Federal Home Loan Mortgage Corporation.

FICO
The most common credit-scoring model used by lenders, it is also known as a Fair, Isaac score. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed-Rate Loans
Fixed-rate loans have interest rates and payment that remain the same for the life of the loan.

Flood Insurance
Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

FNMA
Federal National Mortgage Association.

Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Foreclosure (or Repossession)
A legal process by which a mortgaged property may be sold to pay off a mortgage loan that is usually in default.

Freddie Mac
A common nickname for the Federal Home Loan Mortgage Corporation.