MORTGAGE DEFINITIONS A - C

7/23 and 5/25 Mortgages
Mortgages with a one time rate adjustment after seven years and five years respectively.

3/1, 5/1, 7/, and 10/1 ARMs
Adjustable rate mortgages in which rate is fixed for three year, five year, seven year and 10-year periods, respectively, but may adjust annually after that.

Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due on Sale Clause.

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage, variable rate mortgage or Canadian rollover mortgage.

Adjustment date
The date that the interest rate changes on a 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 buyer's 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 closing costs that are likely.

Amortization
Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

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 30- year fixed rate mortgage.

Annual Percentage Rate (APR)
The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of different loans.

Appraisal
An estimate of the value of property made by a qualified professional called an "appraiser".

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge experience, and analysis of the property.

Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assignment
The transfer of a mortgage form one person to another.

Assumability
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
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage for the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market rate interest charges will apply.

Assumption Fee
The fee paid to a lender(usually by the purchaser of real property) when an assumption takes place.

Balloon Mortgage
A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty year amortization and a five or seven year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is know as a balloon payment.

Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.

Borrower(Mortgagor)
One who applies for receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Bridge Loan
A second trust that is collateralized 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 in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy Down
When the lender and or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Cash Flow
The amount of cash derived over a certain period of time form an income producing property. The cash flow should be large enough to pay the expenses of the income producing property(mortgage payment, maintenance, utilities, etc...)

Caps (interest)
Consumer safeguards which limit the amount of charge to the interest rate for an adjustable rate mortgage.

Caps (payment)
Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.

Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business and mobile homes. Certificates of eligibility may be obtained by sending form DADA(Separation paper) to the local VA office with VA form 1880(request for Certificate of Reliability.)

Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of Veteran Status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261� (request for Certificate of Veteran Status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxed, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

Closing Cost
Expenses over above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow cost, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

COFI
And adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.

Construction Loan
A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.

Consumer Reporting Agency (or Bureau)
And organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports form a credit repository and other sources.

Contract Sale or Deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Loan
A mortgage not insured by FHA or guaranteed by VA

Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.

Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.