40 Most Commonly-Used Mortgage Terms

Posted by Nancy J. Price on November 24, 2015

Just in case you don’t know amortization from prequalification, or why the House Price Index matters, you’ll want to bookmark this list! Our quick glossary of common mortgage terms will help you simplify the process of getting your real estate investment — whether you’re a homebuyer, homeowner, or Fix and Flipper.

Adjustable-Rate Mortgage (ARM): Mortgage loan with an interest rate subject to change

Amortization: The gradual loan repayment, with a portion of each monthly payment applied toward the principal, and another portion to the interest

Annual Percentage Rate (APR): The total annual cost of a mortgage, stated as a percentage of the loan amount, reflecting interest rate, points, loan fees and other charges

Appraisal: A professional opinion of the market value of a property

Closing Costs: Amount the buyer must pay (about 3-4% of the loan amount) when sale is finalized, including points, mortgage insurance, homeowners insurance, property tax prepayment, etc.

Closing: When ownership transfers from the seller to buyer, funds disburse, and all documents are signed

Co-Borrowers: Another person who signs for a loan, and who is equally responsible for repayment

Conforming Loans: A common loan, with maximum borrowing amounts set by the government

Construction Loan: A short-term loan to pay for building a property

Consumer Confidence Index: A measure of optimism in the state of the economy that consumers express through saving and spending

Conventional Mortgage: A mortgage not insured or guaranteed by the federal government

Convertible ARM: Adjustable-rate mortgage that can be changed into a fixed-rate mortgage under certain rules

Credit Score: A number generated based on your credit report; used to estimate how likely you are to repay a loan on time

Current Market Value: An estimate of how much a property would sell for under normal conditions

Default: When a mortgage payment is seriously overdue (time varies by lender), putting you at risk of foreclosure

Delinquency: Failure to make a payment when due

Deposit: Cash paid to the seller when sales contract is signed

Down Payment: A percentage of the purchase price paid to the lender before close

Equity: Owner’s financial interest in a property, calculated by subtracting the amount owed from the current market value

Escrow/Impound Account: An account where a portion of each monthly mortgage payment goes to pay property taxes, homeowners insurance, mortgage insurance, etc.

Fixed-Rate Mortgage: Where the interest rate stays the same for the entire term

Foreclosure: When a homeowner is in default, a property may be legally sold and the proceeds applied toward the mortgage debt

Hazard Insurance: Insurance required by lenders to pay for loss or damage to a person’s home or property

Home Equity Loan: Loan secured by a property, received in a lump sum

Home Improvement Loan: Loan specifically for remodeling or home repairs

House Price Index: Measures average price changes in repeat sales or refinancing the same properties, thereby indicating house price trends

Interest Rate: Yearly cost you pay to borrow the money expressed as a percentage rate, not reflecting fees or other charges

Investment Property: Property purchased not as the owner’s primary residence, but to generate income, profit, or tax benefits

Lien: A lender’s right to claim the property if the owner defaults on the loan

Lock-in Fee: A fee paid to the lender for “freezing” the interest rate and/or points at the time of loan application to keep them from changing while the loan is processed

Mortgage Insurance (MI): Insurance protecting lenders against losses caused by a homeowner’s loan default

Mortgage Payment: Monthly payment of loan principal, interest, property taxes, hazard insurance, and any homeowner’s association fees

Mortgage: A loan to buy real estate, usually with a 15- to 30-year term. The property secures the loan in cause you don’t repay the debt, plus interest

Origination Fee: Lender’s charge to process the loan application

Point: One-time charge by the lender; each point equals 1% of the amount borrowed

Prequalification: Before a loan application, determination of how much money a prospective buyer will be eligible to borrow

Principal: The amount of debt, excluding interest, remaining on a loan

Refinance: Getting a new mortgage to pay off and replace the existing mortgage

Title Insurance: Usually required by the lender to protect the lender from unknown liens, defects, or encumbrances on the property

Title/Deed: Documentation of property ownership


An Informed Investor Is a Successful Investor:
Apply for your next loan today!

 

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