Mortgage Glossary
Comprehensive definitions of mortgage and real estate terms to help you navigate the home financing process with confidence. Search or browse alphabetically.
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1
1031 Exchange
A tax-deferred exchange under Section 1031 of the Internal Revenue Code that allows investors to defer capital gains taxes by reinvesting proceeds from a sold property into a like-kind property.
A
Adjustable-Rate Mortgage (ARM)
A mortgage loan with an interest rate that can change periodically during the life of the loan. The rate is typically tied to a financial index and adjusts at specified intervals.
Amortization
The process of paying off a debt over time through regular monthly payments. Each payment covers both principal and interest, with early payments going mostly toward interest.
Annual Percentage Rate (APR)
The yearly cost of credit expressed as a percentage rate. APR includes the interest rate plus additional fees and costs, providing a more comprehensive measure of loan cost than interest rate alone.
Appraisal
A professional estimate of a property's value conducted by a licensed appraiser. Lenders require appraisals to ensure the loan amount doesn't exceed the property's value.
Asset
Anything of value that you own, including cash, investments, real estate, vehicles, and personal property. Lenders consider assets when evaluating loan applications.
Assumption
The process of taking over the existing mortgage of a home seller. The buyer assumes responsibility for the seller's mortgage terms and payments.
B
Balloon Mortgage
A mortgage with low monthly payments for a set period, followed by one large final payment (the "balloon" payment) that pays off the remaining balance.
Bank Account Verification
The process where lenders review your bank statements to verify income deposits, account stability, and spending patterns. This helps assess your financial responsibility and ability to manage money.
Basis Point
One-hundredth of a percentage point (0.01%). Used to describe small changes in interest rates. For example, if rates increase from 4.00% to 4.25%, that's an increase of 25 basis points.
BKR (Netherlands)
Bureau Krediet Registratie - Netherlands' central credit register that maintains records of all credit agreements. Lenders use BKR data to assess credit risk for mortgage applications.
Break-even
The point at which the costs of refinancing equal the savings. This is the time it takes for the monthly savings from a lower interest rate to offset the closing costs of refinancing.
Broker
A licensed professional who acts as an intermediary between borrowers and lenders. Mortgage brokers shop around to find loan products that meet borrowers' needs.
C
Cap
The limit on how much an adjustable-rate mortgage's interest rate can increase or decrease over a specific period or during the life of the loan.
Cash-Out Amount
The amount of cash you receive when doing a cash-out refinance. This is the difference between your new loan amount and what you owe on your current mortgage, minus closing costs.
Central Provident Fund (CPF)
Singapore's mandatory social security savings scheme where employers and employees contribute a portion of salary. Lenders check CPF contribution history to verify employment stability and savings patterns.
CIRBE (Spain)
Central de Información de Riesgos del Banco de España - Spain's credit information registry that tracks credit exposures and payment incidents. Used by lenders to assess borrower risk.
Closing
The final step in the home buying process where ownership of the property is transferred from seller to buyer. Also called "settlement."
Closing Costs
Fees and expenses paid at closing, separate from the down payment. These may include loan origination fees, title insurance, attorney fees, and other charges.
Collateral
Property or assets that secure a loan. In mortgage lending, the home itself serves as collateral for the loan.
Conforming Loan
A mortgage that meets the standards set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, including maximum loan amounts.
Conventional Loan
A mortgage that is not insured or guaranteed by a government agency. These loans typically require higher credit scores and down payments than government-backed loans.
Credit Bureau
An agency that collects and maintains credit information about consumers. In the US, the three major credit bureaus are Equifax, Experian, and TransUnion. They generate credit reports and scores used by lenders.
Credit Mix
The variety of credit types you use, such as credit cards, installment loans, and mortgages. Having different types of credit can improve your credit score by demonstrating responsible credit management.
Credit Report
A detailed record of your credit history, including accounts, payment history, outstanding debts, and public records. Lenders use this to assess creditworthiness.
Credit Score
A numerical representation of your creditworthiness, typically ranging from 300 to 850. Higher scores indicate lower credit risk and may qualify for better loan terms.
Credit Utilization
The ratio of your credit balances to your available credit limits, expressed as a percentage. Lower utilization (under 30%) is generally better for credit scores as it indicates responsible credit management.
Current Interest Rate
The interest rate on your existing mortgage loan. This rate determines how much interest you pay monthly on your outstanding balance.
Current Remaining Term
The number of years left on your existing mortgage loan. For example, if you have a 30-year mortgage and have been paying for 5 years, you have 25 years remaining.
D
Debt-to-Income Ratio (DTI)
A percentage that compares your monthly debt payments to your gross monthly income. Lenders use DTI to assess your ability to manage monthly payments and repay debts.
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to assess your ability to handle mortgage payments alongside other obligations.
Deed
A legal document that transfers ownership of real property from one party to another. The deed must be properly executed and recorded.
Default
Failure to make mortgage payments as agreed in the loan contract. Default can lead to foreclosure proceedings.
Discount Points
Prepaid interest charges paid at closing to lower your mortgage interest rate. One discount point typically equals 1% of the loan amount and reduces the interest rate by about 0.25%. Also called origination points.
Down Payment
The portion of a home's purchase price that you pay upfront in cash. The remainder is financed through a mortgage loan.
E
Earnest Money
A deposit made by the buyer to show good faith when making an offer on a home. This money is typically held in escrow and applied toward the down payment at closing.
Electoral Roll
Official government list of registered voters. Some lenders, particularly in the UK, use electoral roll data to verify identity and residential address stability as part of the credit assessment process.
Employment Stability
Consistent work history and income over time. Lenders prefer borrowers with stable employment, especially in countries without comprehensive credit scoring systems.
Equifax
One of the three major US credit bureaus that collect and maintain credit information. They generate credit reports and scores used by lenders to assess borrower risk.
Equity
The difference between your home's current market value and the amount you owe on your mortgage. Equity builds as you make payments and/or the property appreciates.
Escrow
An account managed by a third party (typically the lender) that holds funds for property taxes and homeowner's insurance. Monthly escrow payments are added to your mortgage payment and held until taxes and insurance are due.
Estimated Annual Interest Rate
The projected interest rate you expect to pay on a new mortgage loan. This is an estimate based on current market conditions and may change before closing.
Expected Annual Investment Return
The annual rate of return you anticipate earning on your investments. This is typically expressed as a percentage and helps compare investment growth against mortgage costs.
Experian
One of the three major US credit bureaus. They provide credit reports, scores, and identity protection services to consumers and lenders.
F
FHA Loan
A mortgage insured by the Federal Housing Administration. These loans typically require lower down payments and credit scores than conventional loans.
FICO Score
A credit scoring model developed by Fair Isaac Corporation, ranging from 300-850. Higher scores indicate lower credit risk and typically qualify borrowers for better mortgage terms and lower interest rates.
FICP/BNP (France)
France's credit bureaus - Fichier national des incidents de remboursement des crédits aux particuliers (FICP) tracks payment incidents, while BNP Paribas maintains credit information. Used together for comprehensive credit assessment.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant throughout the entire term of the loan, providing predictable monthly payments.
Foreclosure
The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments as agreed.
G
Good Faith Estimate (GFE)
A standardized form that lenders provide within three days of receiving a loan application, estimating the costs associated with the loan.
Gross Monthly Income
Your total monthly income before taxes and deductions are taken out. This includes salary, wages, bonuses, and other sources of income, and is used by lenders to calculate your debt-to-income ratio.
H
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home's equity. Similar to a credit card, you can borrow up to a limit and pay interest only on the amount used, with flexible repayment terms.
Home Inspection
A professional examination of a home's condition, typically conducted before purchase to identify potential problems or needed repairs.
I
Income Verification
The process of confirming your reported income through documentation such as pay stubs, tax returns, or employer verification. Critical for lenders to assess your repayment ability.
Index
A benchmark interest rate that serves as the basis for adjustable-rate mortgages. Common indexes include the prime rate and various treasury securities.
Interest Rate
The percentage of the loan amount charged annually for borrowing money. This rate determines the cost of the loan beyond the principal amount.
J
Japan Credit Information Reference Center (JICC)
One of Japan's main credit information agencies that collects and provides credit data to lenders. Maintains records of credit agreements and payment history.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by government-sponsored enterprises. Also called a non-conforming loan.
L
Length of Credit History
How long you have had credit accounts. Longer credit history generally leads to higher credit scores as it provides more data for lenders to assess your credit behavior.
Lien
A legal claim against a property that must be paid when the property is sold. Mortgages, tax obligations, and mechanic's liens are common examples.
Loan-to-Value Ratio (LTV)
The relationship between the loan amount and the property's value, expressed as a percentage. A $200,000 loan on a $250,000 home has an 80% LTV.
M
Margin
The number of percentage points added to an index rate to determine the interest rate for an adjustable-rate mortgage.
Mortgage Insurance
Insurance that protects the lender if the borrower defaults on the loan. Required on conventional loans with less than 20% down payment and all FHA loans.
N
New Credit
Recent credit applications and new accounts. While opening new credit can improve your credit mix, too many recent applications can temporarily lower your credit score.
O
Origination Fee
A fee charged by the lender to cover the costs of processing the loan application. Typically expressed as a percentage of the loan amount.
Other Monthly Debt Payments
Monthly payments for debts other than your mortgage, such as credit cards, car loans, student loans, and personal loans. Lenders include these in your debt-to-income ratio calculation.
Outstanding Balance
The remaining amount you still owe on your mortgage loan. This decreases over time as you make principal payments.
P
P&I Payment
Principal and Interest payment - the portion of your monthly mortgage payment that goes toward paying down the loan principal and interest. This excludes taxes and insurance.
Payment History
Your record of paying credit obligations on time. This is typically the most heavily weighted factor in credit scoring, representing 35% of your FICO score.
Points
Prepaid interest charges, where one point equals 1% of the loan amount. Points can be used to buy down the interest rate.
Positive Credit Reporting
A credit reporting system where both positive (good payment history) and negative credit information is recorded. Used in Australia to provide lenders with a more complete picture of credit behavior.
Pre-Approval
A lender's conditional commitment to provide a loan up to a specific amount, based on a thorough review of the borrower's financial situation.
Pre-Qualification
An informal estimate of how much you might be able to borrow, based on basic financial information you provide to a lender.
Preferred Loan Term
The length of time you want to take to repay your mortgage loan, typically 15, 20, or 30 years. Shorter terms have higher monthly payments but lower total interest costs.
Private Mortgage Insurance (PMI)
Insurance that protects the lender if the borrower defaults on a conventional loan with less than 20% down payment. PMI is typically required until the loan-to-value ratio reaches 78%.
Property Valuation
Professional appraisal of a property's market value. Lenders require property valuations to ensure the loan amount doesn't exceed the property's worth, protecting both lender and borrower interests.
R
Refinancing
The process of obtaining a new mortgage to replace an existing one, often to secure better terms or access home equity.
Remaining Term
The number of years left on your mortgage loan. For example, if you have a 30-year mortgage and have been paying for 5 years, you have 25 years remaining.
Reverse Mortgage
A loan available to homeowners aged 62 and older that converts home equity into cash. Instead of making payments, the loan balance grows over time and is repaid when the home is sold or the borrower passes away.
Risk Profile
Your tolerance for investment risk, typically categorized as conservative (preferring stability), moderate (balanced approach), or aggressive (willing to accept volatility for higher potential returns).
S
Savings Account Balance
The amount of money you currently have saved in cash or liquid accounts. This represents funds available for emergencies, down payments, or investment opportunities.
SCHUFA (Germany)
Schutzgemeinschaft für allgemeine Kreditsicherung - Germany's primary credit bureau that maintains credit information and provides credit scores for German lenders.
Singapore Credit Bureau (CBS)
The primary credit bureau in Singapore that collects and maintains credit information for lenders and consumers. Provides credit reports and scores for mortgage applications.
T
Target Total Monthly Payment (PITI)
The total monthly housing payment you want to afford, including Principal, Interest, Taxes, and Insurance (PITI). This helps determine how much house you can afford based on your budget.
Title Insurance
Insurance that protects against financial loss from defects in a property's title. It covers issues like undisclosed liens, forged documents, or incorrect surveys. Required by most lenders and available for both buyers and lenders.
Total Annual Property Costs
The total yearly cost of owning and maintaining a property, including property taxes, homeowners insurance, maintenance, and other expenses. This helps determine your true cost of homeownership.
Total Investment Value
The total current value of all your investment holdings, including stocks, bonds, mutual funds, retirement accounts, and other investment vehicles.
TransUnion
One of the three major US credit bureaus that collect credit data from lenders and generate credit reports and scores.
V
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to eligible veterans, active military, and surviving spouses.
VantageScore
An alternative credit scoring model developed by the three major credit bureaus. Uses a 300-850 scale similar to FICO but may weight factors differently.
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Important Disclaimer
Not Financial Advice: This information is for educational purposes only. Consult qualified professionals before making financial decisions. Results are estimates and may vary based on market conditions and individual circumstances.