Valerie, David, and Dr. Christian Long

Mortgage Glossary

Adjustable Rate Mortgage (ARM): Mortgage loans under which the interest rate is periodically adjusted based upon terms agreed to at the inception of the loan.

Amortization: The reduction of a debt through regular payments of both interest and principal.

Annual Percentage Rate (APR): The total cost of a mortgage stated as a yearly rate; it includes all financing costs, such as interest, mortgage insurance, and the loan origination fee.

Appraisal: An estimate of the value of a property made by a qualified person, using the property’s age, size, location, quality, etc.




Bankruptcy Code: Chapter 7 covers liquidation of the debtor's assets; Chapter 11 covers reorganization of bankrupt businesses; and Chapter 13 covers payment of debts by individuals through a bankruptcy plan.




Closing: Also known as settlement, the finalization of the process of purchasing or refinancing real estate. The closing includes the delivery of a deed, the signing of mortgage documents and the disbursement of funds.

Closing Costs: Costs that are paid at closing, in addition to the purchase price of the property. These costs normally include, but are not limited to, origination fees, discount points, attorney's fees, costs for title insurance, surveys, recording documents, and prepayment of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.

Co-Borrower: A party who signs the mortgage note along with the primary borrower, and who also shares the title to the subject real estate.










Debt-to-Income Ratio: Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts. The other debts may include, but are not limited to: car payments, credit cards, alimony, child support, and personal loans. This ratio is commonly used to see if the borrower has the capacity to repay the debt.



Delinquency: The condition of a loan when a scheduled payment is 30 or more days past due.





Fair Market Value: The price that a property would bring if freely offered on the open market with both a willing buyer and willing seller.




Floating: The term used when a purchaser elects not to lock in an interest rate at the time of application.






Home Equity Loan: A cash loan made against the equity in the borrower’s home. A home equity loan is a second loan that can be used for big expenses, such as college loans and home improvements.

Home Equity Line of Credit (HELOC): A type of revolving loan that enables a homeowner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in the property

Homeowner’s Insurance: A policy that protects you and the lender from fire or flood that damages the structure of the house; a liability, such as an injury to a visitor to your home; or damage to your personal property, such as your furniture, clothes, or appliances.



Interest:  The amount paid by a borrower to a lender for the use of the lender's money for a certain period of time.


Judgment: The final legal decision by a judge in a court of law regarding the legal rights of involved parties or the payment of a debt.


Liabilities: A person’s debts and other financial obligations.







Mortgage: The written instrument used to pledge a title to real estate as security for repayment of a promissory note.

Mortgage Rate: The interest rate you pay to borrow money to buy your house.




Points: A factor used in rate adjustment. One point is equal to 1% of the loan amount.

Pre-Approval: A process in which a customer provides appropriate information on income, debts and assets that will be used to make a credit-only loan decision. The customer typically has not identified a property to be purchased; however, a specific sales price and loan amount are used to make a loan decision. (The sales price and loan amount are based on customer assumptions.)



Private Mortgage Insurance: Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower.




Recording: The filing of a lien or other legal documents in the appropriate public record.

Refinancing: Creating a new loan, usually with a lower interest rate, to pay off an existing loan using the same property as security.


Second Mortgage: A mortgage that is subordinate to a first mortgage, often created when a borrower needs additional funds.

Secured Loan: A loan that is backed by property such as a house, car, jewelry, etc.

Security: The property that will be given or pledged as collateral for a loan.

Servicing: All the management and operational procedures that the lender (or a company acting for the lender) handles for the life of the loan, including: collecting the mortgage payments, ensuring that the taxes and insurance charges are paid promptly, sending the borrower an annual report on the mortgage and escrow accounts, releasing the lien upon payment in full, and foreclosing if in default.  

Servicing Released: A stipulation in the agreement for the sale of mortgages in which the lender is not responsible for servicing the loan.

Servicing Retained: A loan sale in which the original lender's servicing department continues to service the loan after the sale to a secondary institution or investor.

Settlement: The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions.


Subordinate Financing: An additional lien against the real estate securing the borrowers’ first mortgage. This lien takes second priority to the first mortgage.

Taxes and Insurance: Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by the borrower for, state and local property taxes and insurance premiums.

Title: Evidence of the ownership of land, publically recorded in the county in which the property is located.  Once your transaction closes and title is recorded, you are the owner with all rights to the property.

Title Insurance Policy: A contract by which the insurer, usually a title company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims, or defects of title to real estate, which the insured has an interest as owner, mortgagee, or otherwise.

(a) Owner's Title Policy: Usually issued to the landowner himself. The owner's title insurance policy is bought and paid for only once and then continues in force without any further payment. Owner's title insurance policies are not assignable.

(b) Mortgagee's Title Policy: Issued to the mortgagee and terminates when the mortgage debt is paid. In the event of foreclosure, or if the mortgagee acquires the title from the mortgagor in lieu of foreclosure, the policy continues in force, giving continued protection against any defects of the title which existed at, or prior to, the date of the policy.

Title Search: A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Transfer Tax: State or local tax payable when the title to the property passes from one owner to another.

Truth-In-Lending Act (TILA): A federal law that requires disclosure of a truth-in-lending statement for consumer credit. The statement includes a summary of the total cost of credit, such as the annual percentage rate (APR) and other specifics of the credit.

Underwriting: The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.

Unsecured Loan: A loan that is not backed by collateral.
