Glossary of Mortgage Terms

Foreclosure

A legal procedure in which mortgaged property is sold to repay the defaulting borrower's loans.

Grace Period

A grace period is usually a period of time from the due date of a mortgage payment until it's considered delinquent. Sometimes this period is 10 days.

Hazard Insurance

This is required by the lender to protect a property against fire and other common hazards. A certificate of such insurance is required at closing.

Homeowners Insurance

Covers the home against major perils such as fire, theft, and personal/property damage.

Jumbo Mortgage

Jumbo mortgages are all mortgages with loan amounts over the dollar limit guideline set by Fannie Mae and other government agencies. Jumbo applicants with good credit will also likely find the 28/36 housing and debt ratios to be relaxed to about 36/38 or better.

Lien

A legal claim or encumbrance against property, usually found on a title. Liens must be removed to clear a title.

Loan-to-Value Ratio (LTV)

The relationship of a mortgage to the appraised value of the property. This value is expressed in terms of a percent. A 90 percent Loan to Value (LTV) means the loan is for 90 percent of the property value.

Margin

The amount, expressed as a percentage, that a lender adds to an index to arrive at the interest rate for an Adjustable Rate Mortgage (ARM).

Master Policy

The master policy defines for the lender the terms and conditions for the payment of any insurance (a claim).

Mortgage

A voluntary lien filed against property as security for a debt.

Mortgage Banker

A banker can originate mortgage loans, lend you their own funds and close the loan in their own name. They may, or may not, elect to service the loan.

Mortgage Broker

Brokers originate and process or "package" a loan, but they do not fund the loan or close it in their own name. Instead they have working relationships with several "wholesalers" who provide the various loan programs and funding.

Mortgage Commitment

A notice in writing from the lending institution indicating it will advance mortgage funds (grant a loan) for the purchase of a specific property. The commitment will also state the interest rate and repayment terms of this loan.

Mortgagee

The lender in a mortgage agreement Mortgage Life Insurance -- Insures that the mortgage debt is paid off in the event that the borrower dies.

Mortgagor

The borrower in a mortgage agreement.

Negative Amortization

Mortgage loans in which the initial payments are less than required to properly pay off the loan balance. The remainder of the payment normally due is added back into the loan contract, to be paid at a future time. In many cases the balance due on a mortgage of this type, actually grows instead of decreasing as it would in a normally amortized mortgage.

Private Mortgage Insurance

This is insurance that protects a lending institution against borrower default. It allows the homeowner to purchase a home with less than a full 20% down payment. The premium for this insurance is usually added to the monthly mortgage payment.

Points

Points are prepaid finance charges added to a loan, and designed to increase a lenders yield over the stated rate. One point equals 1% of the loan amount. If you were to pay 3 points on a $120,000 loan to get a 7% interest rate for example, you would pay $3,600 in prepaid interest (3 points). If you choose to lower your interest on a 30-year loan by paying points up front in cash, you'll probably save money over the term of the loan. (Run your specific scenario with amortization charts to see your savings.)

On the other hand, points, in some cases, may be financed in the mortgage itself.

Survey

A map made by a licensed surveyor showing the results of measuring land, its elevations, improvements, boundaries, setbacks, and zoning, as well as the property's relationship to surrounding tracts of land.

Title Insurance

Insurance written by a title company to protect the lender or owner against property loss in the case of undisclosed liens or defect in the title to a property.

Title Search

An examination of public records, court decisions, concerning the history of ownership of real estate. The title examiner searches for any encumbrances or liens and prepares an abstract of his findings.

Underwriting

The verifying of date, analysis of risk, and the matching of risk to an appropriate rate and term, using predetermined guidelines and judgments. The underwriting procedure takes place during the processing of the loan.

VA Mortgage

A program that allows Veterans of the Armed Services to purchase homes with little or no down payment.

Warehouse Fee

The warehousing fee a fee usually charged by a mortgage lender to the borrower for the time the purchase money "sits" while waiting for a loan to close. This is usually just a couple of days. Often, this fee can be negotiated or removed.

Zoning

Regulation of private land use and development by local government, including building codes.