Glossary of Mortgage & Lending Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Abstract of title

A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.

Acceptance

A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Account termination fee

A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination. See also: prepayment penalty.

Additional principal payment

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable-rate mortgage (ARM)

A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.

Adjustment cap

A limit to how much a variable interest rate can increase or decrease in a single adjustment period.

Adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period

The period of time between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability analysis

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs. See also: Prequalification

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization table or schedule

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.

Amortization term

The amount of time required to amortize (pay off) the loan, expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Annual adjustment cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions.

Application fees

Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit profile or a property appraisal.

Appraisal or appraised value

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Appraisal contingency

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.

Appreciation

An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity line of credit.

Approved term (after approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

Approved term (before approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

Assessed value

The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.

Assignment

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Assumable loan

A loan that may be transferred to someone else while maintaining the same terms. For example, if you have an assumable loan (not all loans are assumable) and you sell your home, you may be able to transfer that loan to the new owner with no change in the interest rate and repayment schedule, though you may need to pay a fee in order to do so.