đź“š Mortgage Terms & Definitions đź’ˇ
By Luke Grasso | NMLS #2638025
1. 5/1 Adjustable Rate Mortgage (ARM)
A mortgage with a fixed interest rate for the first 5 years, after which it adjusts annually based on market conditions.
2. Ability-to-Repay Rule
A requirement that lenders verify a borrower’s ability to repay the loan before offering a mortgage.
3. Adjustable Rate Mortgage (ARM)
A type of mortgage where the interest rate can change periodically, depending on market conditions.
4. Amortization
The process of gradually paying off a loan over time through regular payments that cover both principal and interest.
5. Amount Financed
The total amount of money a borrower will receive, excluding fees and costs.
6. Annual Income
The total income earned over a year, which is used by lenders to assess a borrower’s qualification for a loan.
7. Annual Percentage Rate (APR)
The interest rate for a loan, expressed as a yearly cost, including both the interest and any additional fees.
8. Appraisal Fee
A fee charged for assessing the market value of a property being purchased.
9. Automatic Payment
A system set up to automatically deduct loan payments from a borrower’s bank account each month.
10. Balloon Loan
A loan that requires a large payment (the “balloon”) at the end of the term, after smaller regular payments during the loan period.
11. Bi-Weekly Payment
A mortgage payment system where payments are made every two weeks, typically reducing the loan balance faster than monthly payments.
12. Government Recording Charges
Fees associated with recording a property transaction with the government or local municipality.
13. Higher-Priced Mortgage Loan
A loan with an interest rate higher than the average prime rate, indicating a higher risk of default.
14. HOA Dues
Regular payments made to a homeowner association for maintaining common areas in a community.
15. Home Appraisal
An evaluation of a property’s market value, typically required by lenders before approving a mortgage.
16. Initial Adjustment Cap
The maximum amount an interest rate can increase the first time it adjusts on an adjustable-rate mortgage.
17. Initial Escrow Deposit
An upfront payment made to an escrow account, which is used to cover property taxes and insurance.
18. Interest-Only Loan
A type of mortgage where the borrower pays only the interest for a period, with no principal payments.
19. Interest Rate
The cost of borrowing money, usually expressed as a percentage of the loan amount.
20. Interest Rate Cap
A limit on how much the interest rate can increase or decrease over the life of an adjustable-rate mortgage.
21. Jumbo Loan
A type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA).
22. Lender’s Title Insurance
Insurance purchased by the borrower to protect the lender against any legal issues with the property’s title.
23. Lifetime Adjustment Cap
The maximum amount an interest rate can increase over the life of an adjustable-rate mortgage.
24. Loan Assumption
The transfer of a borrower’s mortgage to another party, who agrees to take on the responsibility of the loan.
25. Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value of the property, used by lenders to assess the risk of a loan.
26. Loss Mitigation
A process where lenders work with borrowers to avoid foreclosure, often through loan modifications or repayment plans.
27. Prepaid Interest Charges
Interest that is paid in advance at closing, covering the period between the closing date and the first payment date.
28. Prepayment Penalty
A fee charged to the borrower if the loan is paid off early, typically to compensate the lender for lost interest.
29. Principal
The original loan amount or the remaining balance of the loan, excluding interest and fees.
30. Property Taxes
Taxes levied by local governments on property ownership, usually included in the monthly mortgage payment through an escrow account.
31. Qualified Mortgage (QM)
A type of mortgage that meets certain criteria established by the Consumer Financial Protection Bureau (CFPB), designed to protect borrowers.
32. Qualified Written Request (QWR)
A formal written request from a borrower to a lender asking for information regarding the loan.
33. Repayment Plan
A plan offered by the lender to allow the borrower to make smaller payments or defer payments temporarily, often used in cases of financial hardship.
34. Reverse Mortgage
A loan that allows homeowners 62 or older to convert part of the equity in their home into cash, which is paid back when they move out, sell, or pass away.
35. Subprime Mortgage
A type of loan offered to borrowers with poor credit, often at higher interest rates to compensate for the higher risk.
36. Survey
A measurement and inspection of a property’s boundaries, used to ensure the property is accurately described in legal documents.
37. Title Service Fees
Fees associated with the transfer of a property title, including title searches and title insurance.
38. Total Interest Percentage (TIP)
The total amount of interest paid over the life of the loan, expressed as a percentage of the loan amount.
39. Total of Payments
The total amount of money a borrower will have paid by the end of the loan, including both principal and interest.
40. TRID
The Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule, which requires lenders to provide clear information about mortgage costs.
41. USDA Loan
A government-backed mortgage designed for rural and suburban homebuyers who meet certain income requirements.
42. VA Loan
A mortgage loan backed by the U.S. Department of Veterans Affairs, offering favorable terms to eligible veterans, service members, and their families.
Source: đź”— CFPB Mortgage Key Terms