Mortgage Information Frequently Asked Questions Calculators Rate Lock Options Mortgage Process Guide Glossary

Glossary

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Abstract Of Title
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause
Condition in a mortgage that may require the balance of the loan to become due immediately. This may occur if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically six months, one, three, or five years, depending on the mortgage terms.

Adjustable Rate Mortgage (ARM)
A variable or flexible rate mortgage with an interest rate that adjusts periodically according to the financial index it is based upon plus a margin. To limit the borroweršs risk, the ARM may have a payment or rate cap.

Application
A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.

Application Fee
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal and credit report.

Appraisal
An expert judgment or estimate of the quality or value of real estate as of a given date.

Appreciation
A property's increase in value due to inflation or economic factors.

As Separate Property
Ownership in real property which is to be specifically excluded from community property.

Assessed Valuation
The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment
Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

Assignment
A means of transferring a contract right or other asset to another person or entity.

Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.

The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.

An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.

Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

Balloon Mortgage
A mortgage that has level monthly payments which are insufficient to amortize the loan so that a balloon, or lump sum payment is due at the end of the term. Frequently, balloon mortgages contain an opportunity to refinance when the balloon payment is due.

Bankruptcy
A proceeding in a federal court in which a debtor (who owes more than his/her assets or cash flow) is relieved from the payment of debts. This can affect the borrower's personal liability or the mortgage debt but not the lien of a mortgage.

Basis Points
Used to describe mortgage yield, one basis point equals one 100th of 1% or 0.01%. A mortgage yield increase from 9.50 to 9.75% is an increase of 25 basis points.

Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Bridge Loan
A loan, usually a second mortgage, that is collateralized by the borrower's present home (that is usually for sale).

Building Line of Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy-Down
Where the buyer pays additional discount points in return for a below market interest rate; or the buyer or seller deposits sufficient funds with the lender to reduce the rate during the first one to three years of the loan; or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

Cap
A limit on how much an adjustable rate mortgage's monthly payment or annual interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of- loan cap or periodic cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-a-loan cap restricts the amount the interest rate can increase over entire term of the loan. A periodic cap limits the amount the interest rate can change each interest rate adjustment date.

Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Certificate of Occupancy (CO)
Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited - not to be confused with "Notice of Completion."

Certificate of Reasonable Value (CRV)
A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

Certificate of Title
Document rendering an opinion on the status of a property's title based on public records.

Closed End Mortgage
A mortgage principal amount that is fixed and cannot be increased during the life of the loan.

Closing Costs
The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list:

Buyer's Expenses

Documentary Stamps on Notes
Recording Deed and Mortgage
Escrow Fees
Attorney's Fee
Title Insurance
Appraisal and Inspection
Survey Charge

Seller's Expenses

Cost of Abstract
Documentary Stamps on Deed
Real Estate Commission
Recording Mortgage
Survey Charge
Escrow Fees
Attorney's Fee

The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

Closing
A transaction in which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Cloud On Title
An outstanding claim or encumbrance which adversely affects the marketability of title.

Co-Borrower
One who is individually and jointly obligated to repay a mortgage loan and may or may not share ownership of the property with one or more of the borrowers.