Defining terms

We admit it—we speak "bank" fluently. But we understand that it is not always a shared passion, which is why we've provided this glossary. As always, do not hesitate to contact us should further "interpretation" be required.


MORTGAGE BORROWER'S GLOSSARY

Adjustable-Rate Mortgage (ARM) — The distinguishing characteristic of an ARM is that its interest rate will change during the life of the loan based on the performance of an index. Interest rate adjustments are made by the lender or mortgage servicer according to a schedule that is set at loan closing. With each change, the borrower's monthly payment may go up or down. The interest rate and the monthly mortgage payment are adjusted, based on interest rates in the market at the time of the ARM adjustment, at established intervals.
Amortization — The gradual repayment of a mortgage by installments.
Amortization Schedule — A timetable for payment of a mortgage that lists the remaining balance, and the amount of each payment that is applied to interest versus principal.
Annual Percentage Rate (APR) — The total yearly cost of a mortgage stated as a percentage of the loan amount; includes the base interest rate, borrower-paid mortgage insurance if necessary, and loan origination fee or points.
Appraisal — A professional opinion of the market value of a property.
Appreciation — An increase in the value of a house due to change in market conditions or other causes.
Assessed Value — The valuation placed upon property by a public tax assessor for purposes of taxation.
Binder — A preliminary agreement, secured by the payment of earnest money, whereby a buyer offers to purchase real estate.
Borrower — The mortgagor or buyer in a mortgage agreement.
Bridge Loan — A loan that enables a home buyer to get financing to make a down payment and pay closing costs on a new home before selling property currently owned. Also called gap financing.
Broker — A person trained and licensed to carry out real estate transactions and receive a fee for these services.
CMT — The Constant Maturity Treasury (CMT) is published by the Federal Reserve Board based on the average yield of a variety of Treasury securities adjusted to a one-year maturity. The CMT is offered as an index on adjustable rate mortgages.
Cap — To protect borrowers against extreme increases in their monthly payments, adjustable-rate mortgages feature "caps," which are limits on how much the interest rate can increase.
Cash Reserve — A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.
Certificate of Occupancy — A certificate issued by a local building department to a builder or renovator, stating that the building is in proper condition to be occupied.
Clear Title — A title that is free of liens and legal questions regarding ownership of the property.
Closing — The occasion when a sale is finalized, the buyer signs the mortgage, and closing costs are paid. Also called the settlement.
Closing Agent or Attorney — Sometimes called the settlement agent, this person works on behalf of the buyer to handle closing and legal transfer of title and ownership from the seller to the buyer.
Closing Costs — Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.
Closing Statement — A legal form used at closing that gives an account of the funds received and paid at closing, including the escrow deposits for taxes, hazard insurance, and borrower-paid mortgage insurance. This is also referred to as the HUD-1 Settlement Statement.
Collateral — Property pledged as security for a debt, such as real estate pledged as security for a mortgage.
Commission — A fee paid to real estate agent for their services in selling the property; generally, an agreed upon percentage of the selling price.
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 plus an interest in common areas of a multi-unit project.
Contingency — A condition that must be met before a contract is legally binding.
Conventional Mortgage — Any mortgage that is not insured or guaranteed by the government.
Convertible ARM — An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative — A form of common property ownership in which the residents of a multi-unit building do not own their own units but rather shares in the corporation that owns the property.
Covenant — A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.
Credit Report — A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.
Debt — Debt is the term used for any liability or obligation owed to another person or persons.
Debt-to-Income Ratio — The ratio used to qualify a borrower for a mortgage. Compares the total monthly housing expense and other debt (the amount paid out) with the total monthly gross income (the amount earned).
Deed — The legal document conveying title to a property.
Deed of Trust — The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.
Default — Failure to make mortgage payments on a timely basis or to comply with other conditions of the mortgage.
Delinquency — A loan in which a payment is overdue.
Depreciation — A decline in the value of property; the opposite of "appreciation."
Discount Points — Amount payable to the lending institution by the borrower to buy down the interest rate on the loan. One point is equal to 1% of the loan.
Down Payment — The part of the purchase price the buyer pays in cash and does not finance with a mortgage.
Fair Credit Reporting Act — A consumer protection law that defines a procedure for correcting mistakes on one's credit record.
FHA Loan — A mortgage that is insured by the Federal Housing Administration (FHA).
First Mortgage — The mortgage that has first claim in the event of default.
Fixed-Rate Mortgage — A mortgage in which the interest rate does not change during the entire term of the loan.
Flood Insurance — Insurance required for properties in federally designated flood areas.
Forbearance — The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.
Foreclosure — The process by which a mortgaged property may be sold when a mortgage is in default.
Graduated Payment Mortgage — A mortgage that starts with low monthly payments that increase at a predetermined rate.
Hazard Insurance — Insurance to protect the homeowner and lender against physical damage to a property from fire, wind, vandalism, or other hazards.
Home Inspection — An inspection of a home done by a professional (usually after an offer is made) to establish the structural and mechanical integrity of the house.
Homeowner's Insurance — An insurance policy that combines liability coverage and hazard insurance.
Homeowner's Warrant — Insurance that covers repairs to specified parts of a house for a predetermined period of time.
Inspector — See Home Inspection.
Interest — The fee charged for borrowing money.
Interest Rate Cap — A provision of an adjustable-rate mortgage limiting how much interest rates may increase per adjustment period. See Lifetime Cap.
Joint Tenancy — A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
LIBOR — The average of inter-bank offered rates for U.S. dollar denominated deposits in the London market, the LIBOR is a rate of interest at which banks offer to lend money to one another. The index is commonly quoted for one-month, three-month, six-month and one-year periods. It is commonly used in capital markets but is also used as an index for adjustable rate mortgages. Current values can be found in various sources such as the Wall Street Journal.
Late Charge — The penalty a borrower must pay when a payment is made after the due date.
Lien — A legal claim against a property that must be paid when the property is sold.
Lifetime Cap — A provision of an adjustable-rate mortgage that limits the total increase in a mortgage interest rate over the life of the loan.
Loan Servicing — The application of mortgage payments from borrowers and related responsibilities, including collection efforts when necessary.
Loan-to-Value Ratio (LTV) — The relationship between the amount of a mortgage and the total value of the property.
Lock-in — A written agreement stating the terms of a borrower's specified interest rate and discount point selection.
Low Down Payment Rate Adjustment — Some lenders may offer a low down payment rate adjustment as an alternative to borrower-paid mortgage insurance. If a borrower makes a down payment of less than 20%, the lender requires either insurance against default (borrower-paid mortgage insurance) or a higher interest rate (low down payment rate adjustment). A low down payment rate adjustment may cost a borrower less than borrower-paid mortgage insurance because of the possible tax deductibility of the higher interest and the relatively low impact the adjustment has on the total monthly payment. Once a satisfactory level of equity has accrued, the rate adjustment may be removed for the remainder of the loan term. A review of the equity position may be requested to determine if the adjustment should be removed.
Manufactured Housing — Manufactured Home means a structure, transportable in one or more sections, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained therein. Modular homes that meet HUD code standards are included in this definition.
Margin — The set percentage the lender adds to the index rate to determine the interest rate of an adjustable-rate mortgage.
Mortgage — A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker — A company that originates mortgages exclusively for resale in the secondary market.
Mortgage Broker — A company that, for a fee, matches borrowers with lenders.
Mortgage Insurance — See Private Mortgage Insurance.
Mortgage Insurance Premium (MIP) — The fee paid by a borrower to FHA or a private insurer for mortgage insurance.
Mortgage Life Insurance — Insurance policy on the life of the borrower to pay the total mortgage debt if the borrower dies before the mortgage is fully paid.
Mortgage Note — A legal document obligating a borrower to repay a loan at a stated interest rate for a specified period of time, with a specific monthly payment date.
Mortgagee — The lender in a mortgage agreement.
Negative Amortization — Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the loan balance increases.
Notice of Default — A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Origination Fee — A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, and may be called points.
Owner Financing — A purchase in which the seller provides all or part of the financing.
Payment Cap — A provision of some adjustable-rate mortgages limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.
PITI — The components of a monthly mortgage payment: principal, interest, taxes, and insurance.
Planned Unit Development (PUD) — A subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots. The association of unit owners generally owns, pays fees, and maintains the common areas.
Points — A point is one percent of the amount of the mortgage loan. Points may be used as the origination fee or as discount points to reduce the interest rate.
Prepayment Penalty — A fee charged to a borrower who pays off a loan earlier than specified in the loan documents.
Pre-qualification — The process of pre-determining how much money a prospective homebuyer might be eligible to borrow. Pre-qualifying for a loan does not guarantee approval.
Principal — The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance — Insurance for the lender that protects against loss in case of loan default by the borrower.
Purchase and Sale Agreement — A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Qualifying Ratios — Guidelines for comparisons between housing costs, total debt, and a borrower's income; applied by lenders to determine how large a loan a homebuyer can afford.
Sales Contract — Sometimes called the offer to purchase, or the sales agreement. It is the controlling document for the closing and contains everything the buyer and seller have agreed upon.
Second Mortgage — A mortgage that carries rights subordinate to the rights of the first mortgage holder.
Seller Take-Back — An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Servicer — The party entrusted with the application of mortgage payments, and the management and disbursement of the mortgage escrow accounts, including collection efforts and legal steps to initiate foreclosure if needed.
Settlement — The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.
Settlement Sheet — The computation of costs payable at closing which determines the seller's net proceeds and the buyer's net payment.
Survey — A drawing indicating the legal boundaries of a property.
Title — A legal document establishing the right of ownership.
Title Company — A company that specializes in insuring title to property. Title insurance protects the lender (lender's policy) or the buyers (owner's policy) against loss arising from disputes over ownership of a property.
Title Search — A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer Tax — State or local tax payable when title passes from one owner to another.
Truth-in-Lending Law — A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Underwriting — The process of evaluating a loan application to determine the lender's level of risk.
VA Loan — A loan that is guaranteed by the Veterans Administration.
Zoning — The division of a city or county by legislative regulations into areas (zones), specifying the uses allowable for the real property in those areas.

SECURITY GLOSSARY


Below is a list of common terms you may need to know to help keep your finances and identity protected.

Anti-Virus — A security program that can run on a computer or mobile device and protects you by identifying, stopping, removing and/or preventing the spread of various malware on your system. Anti-virus software cannot detect all malware, so even if it is active, be cautious of opening files, clicking links, or visiting websites of questionable origin. Sometimes anti-virus tools are called 'anti-malware', because these products are designed to defend against various types of malicious software.
Authentication — The process of identifying an individual, typically by means of a username and password combination and authorizing access to secured data.
Bot — A compromised computer system used by malicious attackers to send spam and perform attacks across the internet. These machines typically belong to users that have no idea that their computer is infected nor the activities that the machine performs from their internet connection. Also known as zombies.
Drive-by Download — These attacks exploit vulnerabilities in your browser or it's plugins and helper applications when you simply surf to an attacker-controlled website. Some computer attackers set up their own evil websites that are designed to automatically attack and exploit anyone that visits the website. Other attackers compromise trusted websites such as ecommerce sites and deploy their exploit software there. Often these attacks occur without the victims realizing that they are under attack.
Exploit — Code that is designed to take advantage of a vulnerability in software. An exploit is designed to give an attacker the ability to execute additional malicious programs on and/or remotely control the compromised system or to provide unauthorized access to affected data or application.
Firewall — A security program that filters inbound and outbound network traffic. It is the gatekeeper between your computer and the internet and determines which traffic can pass through. Almost all computers and wireless routers today come with firewall software.
Keylogger — (See: Spyware)
Malware — Stands for 'malicious software'. Malware is a generic term and includes any type of virus, worm, trojan or other types of malicious code. It is any type of code or program cyber attackers use to perform malicious actions like infecting your computer with a virus or installing a keylogger in an attempt to get usernames and passwords.

A note on malware: Malware can vary by type based on their capabilities and means of propagation. These technical distinctions between different types of malware are becoming less relevant, because modern malware often combines characteristics from each of them in a single attack.
Patch — A patch is an update to a vulnerable program or system. A common practice to keep your computer and mobile devices secure is installing the latest vendor's patches in a timely fashion. Some vendors release patches on a monthly or quarterly basis. Therefore, having a computer that is unpatched for even a few weeks could leave it vulnerable.
Phishing — Phishing is a social engineering technique where cyber attackers attempt to fool you into divulging your personal information (name, ssn, account numbers, answers to security questions...etc) in response to an email.

(see FAQs for more detail on Phishing)
Social Engineering — A psychological attack used by cyber attackers to deceive their victims into taking an action that will place the victim at risk. For example, cyber attackers may trick you into revealing your password or fool you into installing malicious software on your computer. They often do this by pretending to be someone you know or trust, such as a bank, company or even a friend.
Spam — Unwanted or unsolicited emails, typically sent to numerous recipients with the hope of enticing people to read the embedded advertisements, click on a link or open an attachment. Spam is often used to convince recipients to purchase illegal or questionable products and services, such as pharmaceuticals from fake companies. Spam is also often used to distribute malware to potential victims.
Spear Phishing - Spear phishing describes a type of phishing attack that targets specific victims. But instead of sending out an email to millions of email addresses, cyber attackers send out a very small number of crafted emails to very specific individuals, usually all at the same organization or who patronize the same business. Because of the targeted nature of this attack, spear phishing attacks are often harder to detect and usually more effective at fooling the victims.
Spyware - A type of malware that is designed to spy on the victim's activities, capturing sensitive data such as the person's passwords, online shopping, and screen contents. One popular type of spyware, a keylogger, is optimized for logging the victim's keyboard activity and transmitting the captured information to the remote attacker.
Trojan — Short for "Trojan Horse" (check your Greek Mythology) , this type of malware appears to have a legitimate or at least benign use, but masks a hidden sinister function. For example, you may download and install a free screensaver which actually works well as a screensaver. But that software could have malicious code that can infect your computer once you install it.
Virus — A type of malware that spreads by infecting other files, rather than existing in a standalone manner. Viruses often, though not always, spread through human interaction, such as opening an infected file or application.)
Vulnerability — This is a weakness that attackers or their malicious programs may be able to exploit. For example it can be a bug in a computer program or a misconfigured webserver. An attacker or malware may be able to take advantage of the vulnerability to gain unauthorized access to the affected system. However, vulnerabilities can also be a weakness in people or organizational processes.
Worm — A type of malware that replicates itself without requiring any human interaction for it to spread. Worms often spread across networks, though can also infect systems through other means, such as USB keys.