Glossary of Mortgage Terms
Adjustable or Variable Rate Mortgage (ARM or VRM) - a mortgage loan in which the interest rate varies in accordance with changes in a specified index, and may result in changed monthly payments. For further information, refer to the "Consumer Handbook on Adjustable Rate Mortgages."
Adverse Action - a denial of a loan in an amount and on terms acceptable to the borrower.
Annual Percentage Rate (APR) - the actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan. A guide to compare the cost of loans.
Application - an oral or written request for an extension of credit. Usually a printed form on which the lender collects credit, income and debt information about a prospective borrower, plus facts about the property being used to secure the loan. A fee may be charged at the time of application.
Appraisal - an inspection of the property to assure that its market value exceeds the amount of the loan. A fee maybe charged for the appraisal.
Borrower - the person, sometimes referred to as the mortgagor, who obtains a mortgage loan.
Closing - the time and date set for the transfer of the property from seller to buyer and /or for the signing of the loan documents.
Closing or Settlement Costs - fees, in addition to the purchase price of the property, charged at the closing which include but are not limited to lawyer's fees, title search and insurance, survey charges and fees to record the deed, mortgage and other documents.
Commitment Letter - a lender's written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender's decision on the borrower's application.
Counter-offer - an offer made by the lender to grant credit other than in the amount of terms requested by the applicant.
Equal Credit Opportunity Act - federal and state laws that prohibit discrimination in the granting of credit based on race, color, religion, national origin, sex, marital status, age or whether a person is receiving public assistance or alimony.
Escrow Account - money collected in advance by the lender, usually on a monthly basis, for the payment of real estate taxes, betterments and/or insurance.
Fixed Rate Mortgage - a conventional mortgage loan with a set interest rate and equal monthly payments for the entire term of the loan.
Lender - the entity or person, sometimes referred to as the mortgagee, who offers the mortgage loan.
Lien - a legal claim, granted by contract or by a court, against property. A mortgage is one kind of lien.
Loan-to-Value Ratio - the percentage comparison between the unpaid principal balance of the mortgage and the sales price or the appraised value of the property, whichever is lower.
Mortgage - a lien placed by the lender on the borrower's property to secure payment of a mortgage loan and removed when the note has been paid in full. If the borrower defaults on the note, the lender can sell the property to satisfy the debt.
Mortgage Review Board - a regional board consisting of an equal number of lenders and community representatives who will review the residential mortgage loans denied by the lenders where the applicants believe the denial was based on the location of the property.
Note - the borrower's legally binding written promise to repay a debt to a lender on a specified date.
Point - an often non-refundable sum of money, equal to 1% of the principal amount of a mortgage, charged by the lender to cover certain costs of making a loan. The number of points that may be charged must be disclosed to the borrower in writing prior to closing.
Private Mortgage Insurance - protection for lenders against borrower default. Paid for by the borrower and usually required when the down payment is less than 20% of the purchase price.
Rate-Lock Agreement/Interest Rate Commitment - a written agreement by which a lender will hold an interest rate on a mortgage for a specified period of time. The terms and conditions of a rate lock agreement vary from lender to lender.
(RESPA) Real Estate Settlement Procedures Act - a federal law that requires a good faith estimate of closing costs to be given to a consumer on certain first mortgages and a settlement statement to be provided at the closing itemizing all costs to the borrower in connection with the mortgage loan. For further information, refer to the booklet entitled "Buying Your Home - Settlement Costs and Helpful Information."
Right of Rescission - state and federal laws that allow consumers who refinance first mortgages and certain second mortgages to cancel their contract and receive a refund all fees if the mortgage or security interest is granted on the consumer's principal residence. This must take place within three business days following the closing, or following the delivery of the required information and rescission forms and disclosures, whichever occurs last.
Secondary Mortgage Market - investors who purchase residential mortgages originated by lenders.
Title Insurance - protection against loss due to defects in the title that were not uncovered in the title search and not listed in the title report. Both the lender and the borrower may purchase title insurance to protect their own interests.
Title Search - an examination of legal records to check the validity and completeness of the title to the property. The title search should uncover any liens, overdue assessments or other claims against the property.
Truth-in-Lending - federal and state laws that require lenders to provide borrowers with full disclosure of the true cost of a loan and easy-to-understand information about the annual percentage rate and terms of the loan.
Urea Formaldehyde Foam Insulation (UFFI) Notice - a state law requiring a borrower or seller to disclose to a lender the absence or presence of UFFI and the formaldehyde level in a dwelling. A UFFI Certificate is signed at the closing.
