Mortgage Glossary
If you're new to the home buying game, take a minute to study the definitions of some of the terms you're likely to encounter. A basic understanding of these terms can help make the mortgage process less confusing. Even experienced house hunters may benefit from a refresher course in mortgage terms. If you have any questions about the terms below, please don't hesitate to contact our loan department.
- ARM - Adjustable Rate Mortgage
- Mortgage loan under which the interest rate is periodically adjusted to more closely coincide with current market rates. The amounts and times of adjustment are included in the provisions of the notes.
- Amortization
- Payment of a loan in equal installments over a specified period of time so that when time has elapsed, the loan and interest on the loan are fully paid. For example, as each payment toward principal is made, the mortgage amount is reduced or amortized by the amount paid.
- Appraisal
- An evaluation of property to determine its value. An appraisal is concerned chiefly with market value--what a home would sell for in the current marketplace.
- Balloon-Note Mortgages
- The mortgage loan has a fixed rate for a specific period of time. At the end of that time period, the interest rate may be adjusted up or down to more accurately reflect the market interest rates.
- Cap
- A cap on an ARM guarantees that the adjustment will not exceed a designated number of percentage points, up or down, at the adjustment period. A cap may also be placed on changes which can occur over the life of the loan. Cap amounts are designated and set at the time the loan is originated.
- Conventional Loan
- A housing loan not obtained under a government insured program.
- Earnest Money
- The deposit of money by a potential buyer to show he or she is serious about the purchase of the property. If the deal is finalized, the money is applied to the down payment. If the deal falls through, the seller may be permitted to keep the money, unless there is a contingency clause within the offer to purchase.
- Home-Equity Loans
- Mortgage loan secured by the equity, value less any unpaid debt, in the borrower's home. This type of loan may be for various purposes, home improvements or other expenses, and can be in several forms, amortized loans or credit lines.
- Loan Commitment
- A written promise to make a loan for a specified amount on specified terms.
- Loan-To-Value Ratio
- The relationship between the amount of the mortgage and the appraised value of the property or sales price, whichever is less, expressed as a percentage of the appraised value or sales price.
- Title
- The evidence of a person's legal right to possession of property, normally in the form of a deed.
- Title Insurance
- A type of insurance which covers against loss due to problems or defects in connection with the title. A lender's policy protects the financial institution against loss and is usually issued in an amount equal to the original amount of the loan. An owner's policy protects the owner against any loss due to title defects and can be purchased at an additional cost.
- Title Opinion
- A search and examination of records of previous ownership, transfers, etc. regarding a piece of real estate to determine clear title and disclose any matters which could adversely affect the owner or lender. This is prepared by an attorney and may be acquired in place of title insurance.
