Mortgage Terminology

A tax-deferred exchange of real estate employed to offset or even avoid capital gains tax.

A mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Option-arms and hybrid mortgages are also considered adjustable-rate mortgages.

A home loan that isn’t prime or subprime, but somewhere in the middle.

The way a loan is paid off over time in installments, detailing how much goes toward interest, and how much is paid toward principal.

The actual interest rate you pay on your mortgage, which factors in fees, points, and other costs associated with the loan.

A comprehensive report that determines the value of your property based on a number of valuation factors.

The act of assuming responsibility for the payment of a mortgage lien.

A short-term mortgage with small monthly installments and a large lump sum due at the end of the loan term. An example would be a 30 due in 15, which amortizes like a 30 year fixed, but is due 15 years earlier.

A mortgage where 26 half payments, or 13 full payments, are made annually.

A short term loan taken out against one property to finance the purchase of a new property.

The act of securing a lower than par interest rate by paying the bank a lender a premium.

Initial, periodic, and lifetime payment caps which limit how much and how frequently an interest rate can change on an adjustable-rate mortgage.

A refinance transaction where borrowers bring money to the closing table to lower their mortgage balance.

An appraisal issued by the Veterans Administration to determine the value of a property. The loan amount may not exceed the CRV on a VA loan.

The final step in the loan process when loan documents are signed at an escrow or title company.

The amount of money that must be paid to close your loan, including lender fees and third-party charges, along with taxes and transfer fees.

A loan that meets Fannie Mae and Freddie Mac guidelines, which also falls under a certain loan amount.

A short-term loan given to a builder during intervals of the building process which is due upon completion of the project.

Any mortgage loan that is not insured or guaranteed by the federal government, such as a conforming loan.

A tool used by the bank or lender to review your credit scores, your payment history, and your ability to carry and repay debt.

The ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.

A method of avoiding foreclosure by deeding your property to the lender.

A security instrument between the borrower and the lender, recorded in public records as a lien on the subject property. It differs from a mortgage in that the bank can foreclose on the property without judicial proceedings.

The amount of interest added to the principal loan balance when a borrower pays less than the interest-only note rate (see: option arms).

The failure to make a monthly mortgage payment on time, which can eventually lead to a notice of default, and later a foreclosure.

The interest rate the Federal Reserve offers to member banks and thrifts.

An upfront payment made by the home buyer toward the property purchase price, usually ranging from five to 20 percent. The remainder of the sales prices makes up the mortgage loan amount.

A deposit paid to the seller by the buyer as a pledge to complete a real estate transaction. If the seller accepts the offer, the deposit is held in escrow and applied to closing costs when the deal is closed.

A federal law that prevents lenders from discriminating applicants based on race, religion, national origin, sex, age, marital status or involvement in public assistance programs.

A third party intermediary who holds and allocates funds, including taxes and insurance in a mortgage transaction.

The interest rate banks charge one another for overnight use of excess reserves.

One of the largest financiers of conventional mortgages on the secondary market. Widely known as Freddie Mac.

A publicly owned, government-sponsored corporation that packages mortgages and resells them on the secondary market. Also known as Fannie Mae.

A program originated during The Great Depression that allows lower income borrowers to qualify for mortgages as long as they fit certain criteria set forth by the Federal Housing Administration who insures them.

Typically defined as someone who has not owned another property at any time during the three years prior to the date of the purchase.

A mortgage with a constant interest rate that will not adjust at any point during the life of the loan.

The legal process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan.

A disclosure which details your loan summary and an estimate of the charges you’ll incur upon settlement.

A negative amortization mortgage with flexible payment options that gradually increase over time until leveling off. Intended for young couples who are unable to make the full mortgage payment, but whose income will increase over time.

A mortgage of last resort for borrowers who can’t obtain financing in the standard market due to poor credit.

A refinance loan offered to those with negative equity.

Insurance which protects a property owner from damages caused by fire or severe weather.

A mortgage with higher interest rate and/or fees than a Hich Priced Mortgage as defined by the CFPB. Also, known as a HC mortgage or a Private Money (PM) loan.

A mortgage with slightly higher interest rate and/or fees than a Qualified mortgage, as defined by CFPB. Also, know as a HP mortgage.

The value of a property less any and all existing liens. If a borrower owns a property worth $500,000 and has liens of $400,000, equity is $100,000.

A line of credit that uses the value of a property as collateral.

An account established by the issuing bank/lender or loan servicer to collect monthly and automatically pay a borrower’s property taxes and insurance costs when payments are due.

Paying just the interest portion of the mortgage payment each month.

A loan amount above the conforming loan limits, which is set each year by Fannie Mae and Freddie Mac. These loans typically carry higher interest rates than conforming loans because they can’t be sold to Fannie or Freddie.

A credit paid by the lender to the borrower for taking an above-market interest rate.

The lender pays for your mortgage insurance in exchange for a higher interest rate on your mortgage.

A guideline (or set of guidelines) in addition to those required by Fannie Mae, Freddie Mac, or the FHA/VA.