Frequently Used Mortgage Terms from MTH

Mortgage Terms/Mortgage Glossary

The language of mortgage loans can seem a bit daunting if you haven't been through the process before. Below, we've defined a few of the most common terms you'll see during and after submitting your application.


adjustable-rate mortgage (ARM)

adjustment date

adjustment period

The repayment of a mortgage loan by installments with regular payments to cover the and interest.

amortization schedule
A timetable of mortgage payments over the course of a loan that shows how much is applied to both the principal and interest.

amortization term

annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points). This is the rate used to compare rates from lender to lender.

A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.





The transfer of a mortgage from one person to another.

assumable mortgage

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

assumption clause

assumption fee


back ratio
A calculation of your total living expenses, including housing costs, divided by your income.

balance sheet

balloon mortgage

balloon payment



basis point

before-tax income
Income before taxes are deducted.


biweekly payment mortgage

blanket mortgage


A violation of any legal obligation.

bridge loan


buydown mortgage


call option


cash reserves
Money put aside in case of a financial emergency.

cash-out refinance

Certificate of Eligibility

Certificate of Reasonable Value (CRV)

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the current owner legally holds the title to real estate.

chain of title

clear title

The eventual funding of a mortgage loan after the meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

closing cost item
Closing costs are items charged by the lender, third parties and certain service providers. These fees can include origination fees, discount points, title fees and pre-paid items. Impounds such as taxes and homeowner's insurance are in addition to closing costs.

closing statement

cloud on title



combined loan-to-value (CLTV)
The relationship between the unpaid balances of all the mortgages on a property (first and second usually) and the property's appraised value (or sales price, if it is lower.)



commitment letter

common areas

community property

comparables (comps)

compensating factor
The strengths in a borrower's financial profile that may offset any weaknesses.

A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

condominium conversion

conforming loan
The current conforming loan limit is $275,000 and below. Conforming loan limits change annually.

construction loan

consumer reporting agency (or bureau)



conventional mortgage

convertibility clause

convertible ARM

cooperative (co-op)

corporate relocation

cost of funds index (COFI)


credit history
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

credit report

credit repository


An amount owed to another.

The legal document conveying title to a property.

deed in lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

deed of trust


Failure to make mortgage payments when mortgage payments are due.



detached dwelling
A dwelling, usually containing one living unit that is freestanding.

Bringing into view by uncovering, revealing knowledge, making known, freeing from secrecy or ignorance.

discount points
A fee added to your closing costs in exchange for a lower interest rate on a loan.

down payment

due-on-sale provision


earnest money deposit


effective age

effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the source, but other income may qualify if it is significant and stable.


Equal Credit Opportunity Act (ECOA)



escrow account

escrow agent
An escrow agent oversees escrow, the process that some states use to complete a home's sale or purchase. The buyer and seller sign an agreement that gives the escrow agent a detailed list of instructions on how escrow should be carried out, which includes how much money to collect, what documents to prepare and when to order a title search. The escrow agent is a neutral party who fairly represents both the seller and buyer. The escrow agent can be a lender, title company or real estate attorney.


The lawful expulsion of an occupant from real property.

examination of title


Fair Credit Reporting Act

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.

Fannie Mae

Fannie Mae's Community Home Buyer's Program

Federal Home Loan Mortgage Corporation (Freddie Mac)
A private agency created by the federal government that buys and sells mortgages in the secondary market.

Federal Housing Administration (FHA)

fee simple
The greatest possible interest a person can have in real estate.

FHA mortgage

finder's fee

first mortgage
A mortgage that is the primary lien against a property.

fixed-rate mortgage (FRM)

flood insurance


front ratio
A calculation of your total monthly housing expenses divided by your income.


A sum of money given to a home buyer as a present.

good faith estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.

Government National Mortgage Assoc (Ginnie Mae)
A federal corporation that insures mortgage-backed securities, and offers financing options to home buyers.


hazard insurance

home equity line of credit

home equity loan

home inspection
A thorough examination of a property by a professional.

Home Owner's Association
The association that manages a condominium or a planned unit development.

housing ratio

The U.S. Department of Housing and Urban Development.


impound account
An account used to pay your hazard insurance, mortgage insurance and property taxes.

income property
Any property, including land, which earns you money.


Regular payments given to a lender to repay a mortgage.


joint tenancy
A type of ownership where two or more people equally share ownership of a property.

jumbo mortgage
The current loan limit for a conforming loan is $275,000. Loans for amounts above $275,000 are considered non-conforming or jumbo mortgages.




lifetime cap
A provision of an ARM that sets the highest rate that can occur over the life of the loan.

liquid asset
A deposit of funds that can easily be made available as cash.

loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more lenient the lender may be in the approval process.

lock period



The specific amount of interest a lender adds to the index value to calculate the ARM interest rate at each adjustment period. Example: Index 1 Year Treasury Bill = 6.00% margin = 2.75%. The new rate would be 8.75%.

A legal document that pledges a property to the lender as security for payment of a debt. This is no longer commonplace. A deed of trust is the instrument of choice.

mortgage banker
A company (or person) that lends money to home buyers.

mortgage disability insurance
A disability insurance policy that will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

mortgage insurance (MI)




negative amortization
When the amount that you owe on a loan increases despite regular monthly payments.

net rental income
The total annual earnings from a rental property.

no income verification
Some loan products require only that applicants state the source of their income without providing supporting documentation such as tax returns or pay stubs. These programs carry a higher rate due to increased risk to the investor. This is also known as "stated income."

non-conforming loan

non-institutional lender
Any non-traditional lender, which is usually not strictly regulated by state or federal agencies.

non-liquid asset
Any item of value that can't be converted easily into cash.

A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.


origination fee

owner financing


permanent loan
A long-term loan taken out upon completion of a new building.

personal property
Anything that you can own that is considered movable.


Planned Unit Developments (PUD)

Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan. Points reduce the interest rate to the borrower while increasing yield to the investor.

When a lender commits to a loan before the borrower finds a property to buy.


prepayment penalty

When a lender or broker figures out how much you qualify to borrow.

Amount of debt, not including interest. The face value of a note or mortgage.

private mortgage insurance (PMI)
Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Investors generally require private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

promissory note
A written promise to pay back a sum of money at a specific time.


qualifying ratios


rate cap

rate lock-in

Real Estate Settlement Procedure Act (RESPA)
A federal law that says a lender must give a borrower an estimate of closing costs within 3 business days of applying for a loan.

real property
Land and anything permanently attached to it.



Regulation Z
A federal law that requires a lender to give borrowers the Truth in Lending Disclosure stating the annual percentage rate (APR) among other things.

residential loan application form (1003)
The name of the standard loan application that all lenders require a borrower to complete when applying for a loan.

residential mortgage credit report (RMCR)


seasonal income
Any income that you receive on a cyclical basis.

second mortgage
A loan that is in second position behind the first mortgage. Sometimes used as additional down payment or to pull equity from the home.

secondary market
Companies that buy groups of loans from lenders and then sell them to other lenders and investors.

seller carry back

settlement statement
A document that gives a breakdown of the costs that the buyer and seller are responsible for on the closing date.

sole and separate
A type of ownership in a property regardless of marital status. Community property states require additional Disclaimers for married persons holding title in this manner.

stated income


sweat equity
A program that gives a buyer part or all of the money for a down payment in exchange for hours of labor helping to build the home. This program has very specific guidelines and is typically not available to conventional borrowers.


tenancy in common
A type of ownership where two or more people share ownership of a property, but not necessarily equally.


The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.

The evidence one has of right to possession of land.

title insurance

title search

total debt ratio

trailing spouse income
The anticipated income of the spouse of an employee who is being transferred to a new area. Typically, 50% of the income previously earned by the spouse is used.

Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.


A lender's process to evaluate whether or not to approve the borrower for a loan.

unsecured loan
A debt that isn't backed by collateral.


Verification of deposit (VOD)
A form completed by a bank or other depository to verify available funds. Normally bank statements are used in lieu of this form.

Verification of Employment (VOE)
A form completed by the employer to confirm income and dates of employment.

Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.