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Mortgage Borrower's Glossary

A

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.

 

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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.

 

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C

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.

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