Property Mortgage Glossary

Pay your bills on time. Delinquent payments and collections can have a major negative impact on your FICO score.

Adjustable Rate Mortgage (ARM)

A mortgage loan in which the interest rate is adjusted periodically according to a predetermined adjustment criteria.

Annual Percentage Rate (APR)

The actual cost of a mortgage loan expressed as a yearly rate. The APR will be higher than the interest rate stated on the application and note if it includes fees which are categorized as prepaid finance charges such as: interest, discount points, origination fee, required mortgage insurance and other related fees. The truth in Lending Act requires lenders to disclose an APR to assist the borrower in measuring the actual cost of a loan on an annualized basis.

Closing Costs

The costs associated with purchasing a new home (or transfer of a home) and obtaining a mortgage loan. Fees are generally assessed at closing and may include: insurance, loan fees, title fees, transfer fees, taxes, settlement or closing fees, survey fees, title insurance, appraisal fees, etc. The total closing costs are approximately 5% of the mortgage loan amount.

Cost to Refinance a Loan

The fees and total cost associated with obtaining a new mortgage loan and refinancing an existing mortgage loan. Generally fees are assessed at closing and may include: insurance, title fees, transfer fees, taxes, settlement or closing fees, survey fees, title insurance, appraisal fees, etc. The total closing cost is typically 5% of the mortgage loan amount.

Debt Consolidation Loan

A type of loan that allows the borrower to pay off all or a portion of the existing debt (including the existing mortgage loan) from loan proceeds.

Equity

An equity is the portion of a property’s value over and above the loans (liens) against it (i.e., value of property minus loans against property).

First Mortgage

A real estate loan with a lien (i.e., mortgage or deed of trust) on the subject property that has priority over any subsequently lien.

Fixed Interest Rate

An interest rate that does not change during the entire term or life of the loan.

Home Equity Loan

A type of loan that allows homeowners to acquire a loan in addition to their original mortgage/lien using a portion or all of the equity in their home (primary residence). A home equity loan is generally a second mortgage on the subject property and may be used for any personal needs (i.e., college education, debt consolidation, home improvement, etc).

Installment Loans

A loan that has a fixed (or closed-end) term (i.e., 36 months) and fixed unchanging monthly payments. When the loan is paid in full the borrower cannot advance additional money unlike a revolving loan.

Interest Rate

The percentage of an amount of money that is borrowed and is paid for during a specific period specified in the terms of the loan.

Lien

A legal claim against a specific property as security for payment of a debt is known as a lien. The mortgagor (borrower) still holds legal title to the property, however, a lien is pledged as collateral.

Loan Amount

The total amount requested by the borrower to be financed. This amount is the basis of many loan fee calculations. For refinance loans, the loan amount will include the balance of all loans the borrower requests to be paid off, including the original mortgage, other personal debt and/or cash out amount.

Loan to Vale Ratio (LTV)

The ratio between the amount of a given mortgage loan and the lower of sales price or appraised value. To determine a loan-to-value ratio, divide the loan amount by the sales price or appraised value.

Monthly Payment

The amount of principal and interest paid each month on a loan. The monthly payment on a mortgage loan may also include an escrow payment for taxes and insurance.

Monthly Payment Savings

The total monthly payment reduction a borrower may gain by refinancing their mortgage loan.

Pre-qualification

A request by a prospective loan applicant for a preliminary determination of whether the prospective applicant would likely qualify for credit under a lender’s standards, or the amount of credit for which the prospective applicant likely would qualify. Some lenders evaluate pre-qualification requests through a procedure which is separate from the lender’s normal loan application process; others use the same process. Pre-qualification is generally not a commitment to lend.

Principal and Interest (PI)

A portion of the monthly payment that is applied toward the loan balance and accrued interest constitutes a (PI). Payment for property taxes and insurance is considered PITI (principal, interest, taxes and insurance).

Principal, Interest, Taxes and Insurance (PITI)

The monthly payment that is applied toward the loan balance, accrued interest and escrow account. Principal, interest, taxes and insurance are the four major components of a regular monthly mortgage payment. Payment for principal and interest is considered PI (principal and interest).

Qualify

A process of preparing a borrower for a mortgage loan by analyzing their financial data and comparing it to loan program criteria; in order to determine the best-fit program based upon loan-to-value ratio, debt-to-income ratio and credit information (if applicable).

Refinance

Refinance is involved with the process of obtaining a new mortgage loan to pay off the existing debt from loan proceeds using the same property as collateral. This type of loan is generally requested to obtain a lower interest rate and/or reduce payment or term.

Total Fixed Monthly Debt

The total monthly sum of all monthly loan payments for all borrowers is termed as a total fixed monthly debt. This total should only include the minimum required payment and not the actual payment made (if excess payment is made).