Click the terms for more detailed explanations

A

Acceleration Clause

A term in a mortgage agreement that requires the borrower to pay off the loan immediately under certain conditions.

Accrued Interest

The amount of mortgage interest that has been earned but not yet paid.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that can change during the term of the loan. The timing and calculation of adjustments (also called resets) are determined by the loan program, and these details are disclosed in the mortgage documents.

Adjustment Interval

The time between interest rate adjustments of an adjustable rate mortgage (ARM).

Amortization

Amortization is the gradual reduction of a debt by regular scheduled payments of interest and principal.

Annual Fee

A yearly fee that may be charged by credit card issuers.

Annual Percentage Rate (APR)

The cost of credit, including the interest and fees, expressed as an interest rate. APR was created to make it easier for consumers to compare loans with different rates and costs, and by law it must be disclosed in all advertising.

Appraisal

A written estimate of the value of real or personal property prepared by a qualified appraiser. Mortgage lenders almost always require a property appraisal before approving a home loan.

Appreciation

Added value to real estate or other assets that is the result of increasing prices.

Asking Price

The price requested by a seller when a home or property is listed for sale. This amount is often open to negotiation.

Assumable Mortgage

A mortgage that may be “taken over” by a qualified third party. Most assumable mortgages are government-backed products like VA, FHA and USDA home loans.

Assumption Approval Clause

A clause informing borrowers that they cannot assume a home loan without agency approval.

Assumption Indemnity Clause

A clause informing buyers that they must agree to assume all of the obligations of the original borrower under the terms of the instruments creating and securing the loan.

B

Balloon Mortgage

A balloon mortgage is a fixed-rate home loan in which a large portion of the principal balance is repaid with a single payment at the end of its term. Typical terms are five or seven years.

Bankruptcy

A federal legal process for debtors seeking to eliminate or restructure their debts.

Bidding War

A process in which two or more parties attempt to get their offer accepted by a seller, usually by making repeated offers at higher amounts.

Borrower

A buyer who does not pay cash, but instead finances some or all of a purchase.

Breakeven Point

The point at which the monthly savings created by a mortgage refinance offsets the cost of refinancing. It can also refer to the point at which the savings generated by paying discount points covers the cost of those points.

Bridge Loan

A short-term loan designed to cover the time it takes a borrower to secure permanent financing or remove an existing obligation.

Broker

An individual who arranges financing or negotiates a contract on a client’s behalf and earns a commission for doing so.

Buydown

A financing technique in which money is paid upfront to temporarily reduce a loan’s interest rate and lower the payment.

C

Caps 

Consumer safeguards which restrict interest rate increases for adjustable rate mortgages (ARMs). In addition to adjustment caps, there are also lifetime caps, which limit how high a loan’s interest rate may go during the loan’s entire term.

Cash-Out Refinancing

A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be used for any purpose.

Closing

The procedure at the end of a property sale or refinance in which funds legally change hands and public records are filed. Closing is also called settlement.

Closing Costs

Expenses required for a real estate purchase or refinance. Closing costs are also called “settlement costs” and can include lender charges, title insurance, escrow fees, real estate commissions, recording fees, transfer taxes and others. In real estate sales, who pays what is often dictated by local custom. In mortgage refinances, costs may be paid by the lender or borrower.

Commission

The fee charged by an real estate agent or mortgage broker for representing a consumer. A commission is generally a percentage of the sales price or loan amount.

Competitive Market Analysis (CMA)

A report prepared by a real estate agent that determines a house’s market value. The agent compares the house’s attributes to similar properties in the area that have recently sold or are still on the market. The CMA is often used to establish the listing price.

Condominium

Individually-owned unit within a multi-unit development or complex, including an individual interest in the common areas and facilities used by the owners.

Condominium Association

An association of unit owners in a condominium building. The association elects a board of directors, which handles the maintenance and repair of common areas, collection of fees and dues, arbitrates disputes among unit owners, and enforces rules and regulations.

Condominium Fees

Also called maintenance fees or homeowner association dues, the monthly fees paid by all condominium owners for upkeep and insurance.

Conforming Loan

A mortgage that meets the criteria and limits set forth by the two largest buyers of loans, Fannie Mae and Freddie Mac.

Consolidating Debt

Replacing several debts or loans with a single loan or line of credit, usually at a better interest rate and / or a lower payment. (Debt consolidation loans are often home equity loans or lines.)

Construction Loan

A short term loan that finances the cost of construction. The lender advances funds to the builder as the work progresses. Once the construction is complete, the construction loan must be paid off or refinanced with a permanent loan. Sometimes a single two-step loan called a construction-to-permanent mortgage is used.

Consumer Reporting Agency

An organization commonly referred to as a credit bureau that prepares the credit reports used by lenders to assess an applicant’s creditworthiness. The agency obtains data for these reports from creditors, public records, and other sources.

Conventional Loan

A mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the US Department of Agriculture (USDA) and the Department of Veterans Affairs (VA).

Conventional Mortgage

A mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the US Department of Agriculture (USDA) and the Department of Veterans Affairs (VA).

Conversion Option

A conversion option allows a borrower to convert an adjustable loan to a fixed loan. This feature is most often associated with Home Equity Lines of Credit (HELOCs).

Cooperative Housing

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors.

Cosigner

A person who guarantees a loan for a borrower and is obligated to repay it if the borrower defaults. This is called contingent liability, because the co-signer is only obligated if the borrower defaults.

Covenants, Conditions, and Restrictions (CC&Rs)

A set of rules and regulations governing a condominium. The CC&Rs can restrict noise levels, pet ownership, renovations and more. These rules are enforced by the condominium association.

Credit

Amounts extended to a borrower that must be repaid in the future.

Credit Bureau

An agency that gathers and reports credit data.

Credit Card

A card that verifies a debtor’s right to borrow money or buy goods or services on credit.

Credit History

The record of how a consumer has borrowed and repaid debts.

Credit Limit

The maximum amount of charges that may be charged to an account

Credit Ratio

More commonly called a debt-to-income ratio, or DTI, the credit ratio is a consumer’s debt payments (like mortgages, auto loans, student loans and credit card minimums) divided by the gross (before tax) income.

Credit Report

A compilation of an individual’s credit use, including payment history, collections, legal filings and other information. It is compiled by a credit bureau. Experian, TransUnion and Equifax are the largest credit bureaus. Credit reporting companies often combine the records of all three bureaus to create a merged credit report.

Credit Reporting Company

Company that collects information received from more than one credit repository. The data is combined to create a merged credit report.

Credit Score

A statistically derived number designed to measure a person’s creditworthiness. It’s used by lenders to predict the likelihood that an applicant will repay his or her debts.

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