Mortgage Glossary

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Mortgage Glossary
2/1 Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.

Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
Additional Principal Payment A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
Adjustable-Rate Mortgage (ARM).

A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages). Adjusted Basis The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
Adjustment Date The date that the interest rate changes on an adjustable-rate mortgage (ARM). Adjustment Period The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely. Amortization The gradual repayment of a mortgage loan, both principal and interest, by installments. Amortization Term The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual Percentage Rate (APR) The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate. Appraisal A written analysis prepared by a qualified appraiser and estimating the value of a property. Appraised Value An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Asset Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Assignment
The transfer of a mortgage from one person to another.
Suitability An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer. Assumption Fee The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place. Balance Sheet A financial statement that shows assets, liabilities, and net worth as of a specific date. Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
Balloon Payment

The final lump sum paid at the maturity date of a balloon mortgage. Before-tax Income Income before taxes are deducted. Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Bridge Loan A second trust that is collateralize by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan." Broker An individual or company that brings borrowers and lenders together for the purpose of loan origination. Buy down When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buy downs can occur in both fixed and adjustable rate mortgages.

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