Welcome to the mortgage and economic terms glossary. Some definitions contain additional information, examples and answers to common questions.
Adjustable-rate Mortgage (ARM): A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate, such as the cost of funds index calculated by the 11th District of the Federal Home Loan Bank Board, or the yields on one-year or six-month U.S. Treasury securities.
Amortization: The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.
Annual Percentage Rate (APR): The truest cost of a home loan. Per the Truth in Lending Act, all mortgage lenders must disclose their APR. In the mortgage industry, APR may include fees such as documentation fees, private mortgage insurance and more.
Appreciation: The measurable value that increases on a home or property. Market improvements and home renovations often drive appreciation value.
Assessed Value:a value determined by local government assessors and used to calculate annual property or real estate taxes.
Attorney fees: fees possibly due during closing.
Borrower: the individual or individuals extended a loan and mortgage for the purchase of a house and/or property. The borrower is responsible for making all payments and fees associated with the loan over the life of the loan. The borrower is the legal mortgagor.
Bridge loan: a short-term loan used to quickly affect a sale while pending more conventional real estate financing. While not popular, a bridge loan can be useful particularly for certain commercial real estate deals.
Buy down: a situation in which a seller or lender kicks in a sum of money in order to lower the initial interest rate on a home loan to make a sale more appealing for the buyer.
Buyer's agent: real estate agent that works on behalf of the homebuyer.
Cap: maximum monthly payment a borrower may be expected to pay on a loan.
Cash out refinance: a mortgage in which the borrower extracts home equity at the same time a refinance deal is made; can be an alternative to a home equity loan.
Closing: A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory note and mortgage, are signed.
Closing agent: the person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed. May be an attorney or official from a title or mortgage company.
Closing costs: Real estate transaction related fees payable by the buyer and seller during a closing. A wide variety of fees may be included, such as title search, attorney's fees, origination fees, documentation fees and more.
Closing statement: an itemized list of closing costs.
Co-borrower: a borrower with good credit that agrees to take on shared responsibility for a home loan so that the primary borrower may purchase property.
Combination loan: a type of loan that combines an initial loan typically for new home construction, with a second conventional home loan that supplants the first.
Commitment letter: a document from a lender to a borrower that officially lays out the terms of a loan.
Comparable sales, comps: similar home sale prices in the region used as a metric in the calculation of a home's appraised value.
Conforming Mortgage Loan: a mortgage loan that is at or below the amount that Fannie Mae and Freddie Mac can purchase and/or securitize in the secondary mortgage market.
Construction loan: a short-term loan for new home construction that is supplanted with a conventional long-term home loan. See combination loan.
Contingency: any one of a number of common clauses added to real estate agreements that provide buyer or seller rights during various stages of a transaction.
Conventional mortgage: a mortgage offered by any one of the Government sponsored entities, different from an FHA loan.
Conventional Mortgage Loan: any mortgage loan not guaranteed or insured by the government typically through FHA or VA programs.
Credit: money extended from a lender to a borrower based on that borrower’s credit history.
Credit Report: a report of borrowing and repayment history for an individual or entity.
Credit Score: a number based on an individual's credit report that indicates overall credit risk.
Date of closing: date upon which all paperwork associated with a mortgage/property sales exchange is finalized.
Date of possession: actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.
Debt: amount of money a borrower owes to creditors. A metric used to calculate creditworthiness.
Deed: an official and public document that establishes property ownership.
Deed of Reconveyance: when a borrower has paid in full on a mortgage, the lender then awards the borrower a deed of reconveyance. This document becomes also a part of public record. Also known as reconveyance deed and recon.
Deed of trust: a document that in some states is used in place of a mortgage. A deed of trust may be held by a third party, similar to a mortgage.
Default: inability of borrower to make regular and consecutive payments on a loan.
Depreciation: the measure of loss in value of a home or property. Depreciation could be driven by poor economic factors or property damage.
Discount points: a measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points up front, a type of buy-down, in order to lower their overall interest rate and mortgage payment.
Earnest money: a sum of money usually put up by the buyer when an offer on a home or property is made. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing purchase.
Equity (home equity): the measurable value of a home or property above and beyond that owed on a loan. A value upon which many homeowners often borrow.
Escrow account: a separate account held by a mortgage lender out of which required property bills, separate from the loan payment, are made. Property taxes and insurance are examples of costs paid out of escrow. Sometimes called an “impound account.”
Fair-market-value: the price that a piece of property will bear in the current market.
Fannie Mae: a private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, is a government sponsored enterprise (GSE) and together they are responsible for setting annual conforming loan limits and assuring that most Americans are able to finance a home. Fannie Mae is commonly known as a secondary mortgage market and lends to mortgage lenders which in turn extend mortgages to borrowers.
First time buyer: a home loan borrower who has never taken out a mortgage before; often qualifies for various discounts and first-time buyer perks.
Fixed rate mortgage: a conventional mortgage that is outfitted with a fixed interest rate over the life of the loan. Monthly payments are the same from month to month.
Flood certification: in most real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.
Foreclosure: the repossession of a home and/or property by a lender in the event of borrower loan default or the inability to meet mortgage agreements.
Freddie Mac: in concert with Fannie Mae, Freddie Mac is a leading government sponsored enterprise (GSE) and is responsible for maintaining reasonable mortgage market stability, this assuring that Americans are able to purchase homes. Freddie Mac is a secondary mortgage market, meaning the corporation lends to lenders, which in turn extend mortgage products directly to borrowers.
Good Faith Estimate: an itemized list of anticipated loan costs and closing fees passed from a lender to a potential borrower within three days of an application for a home loan. This is a required step in the loan application process per the Real Estate Settlement Procedures Act.
Home inspection: a comprehensive and exhaustive examination of a home by a licensed inspector. Often required as part of a mortgage and home loan process.
Home inspection contingency clause: a clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.
Home loan: not a mortgage, but the actual amount of money a buyer owes the lender in the purchase of a home.
Homeowner's association: an association attached to a neighborhood, apartment, condo or town home complex that establishes certain rules of ownership. Common, but not exhaustive, responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.
Homeowner's insurance: insurance that protects the value of the home for both lender and borrower. Homeowner’s insurance typically covers the cost of replacing the home and various parts of the same. Most mortgage lenders require borrowers to carry a term of insurance.
Initial interest rate, introductory: the interest rate at which an Adjustable Rate Mortgage, ARM, will begin. See Adjustable rate mortgage
Interest rate: a figure calculated as a percentage that is used in the financial industry to indicate the rate charged for use of money in a loan. Interest rates may be fixed or variable. See, Annual percentage rate
Investment property: real estate bought for investment purposes as opposed to private residential. Often the property will be used for rental purposes, such as rental home, apartments or other spaces that give owners the opportunity to create profit and income over the long term.
Joint ownership: a type of property ownership in which two people share equally in a home and/or property; common for spouses.
Joint tenancy: a type of property ownership in which two or more people share.
Lender fees: typically included in fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.
Lender, mortgage lender: the bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer.
Lien: a formal, legal symbol of money owed on a major asset such as property. Also, mortgage.
Loan: money lent from a financial institution to a creditworthy borrower(s) over a specified period of time and at a particular interest rate.
Maturity: typically applied to the term of a home loan or mortgage; the life span of a mortgage.
Mortgage: a legal document between a mortgagor and a mortgagee that establishes a home and/or property as security for a home loan.
Mortgage calculators: online financial tools available on many sites that allow potential buyers to plug in various personal financial figures to arrive at a mortgage value they can afford.
Mortgage insurance: when buyers take out a mortgage with less than a certain dollar percentage to put down on the loan, lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan.
Mortgage originator: the actual company that lends the mortgage, the “originator.”
Offer: a verbal and written offer to buy a home for a certain dollar amount made from a buyer to a seller.
Origination fee: a fee, calculated as a small percentage of the value of the loan, charged by a mortgage lender for processing the loan. One of many fees often due at closing and one that must be disclosed on the Good Faith Estimate when a buyer first completes a loan application.
Power of attorney: a legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
Pre-paid costs or fees: any of a number of fees associated with a mortgage and usually paid out of pocket at the time of closing; includes origination fees, underwriting fees, attorney fees, etc.
Pre-qualification: the process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
Principal: the amount borrowed on a home loan.
Principal balance: the amount currently owed on a home loan.
Private mortgage insurance, PMI: a type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.
Processing fees: lender fees associated with creating the loan or mortgage, usually part of closing costs.
Property address: the physical street address of a home or property, required for mortgage application.
Property appraisal: a fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.
Property taxes: annual local taxes charged against the value of a homeowner's property.
Property valuation, see Property appraisal.
Quit claim deed: a document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
Real Estate Settlement Procedures Act (RESPA): this act passed in 1974 reeled in hidden costs, fees and kickbacks that had become widespread among real estate entities. Per this act all fees and costs must be disclosed to both buyers and sellers.
Real estate tax, also see Property tax.
Refinance: process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage, thereby lowering monthly payments.
Remaining balance: The current balance owed on a home loan.
Remaining term: The current amount of time remaining in the length of the loan.
Repayment schedule: mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
Sales contract: a real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.
Second mortgage: also known as a home equity loan, a second mortgage gives a borrower flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
Secondary mortgage market: the segment of the mortgage and real estate securities market that deals in the investment of mortgages; not direct mortgage lenders.
Seller’s agent: a real estate agent that works on behalf of the home seller.
Short sale: useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
Survey: a formal survey of property that establishes boundary lines and defines any types of limits on construction and other features that could affect the value of property; in many cases lenders require buyers to purchase a property survey.
Tenancy in common: one or more persons may possess the property title, but ownership may be declared in various percentages.
Third-party fees: see also Closing costs.
Title: the official document used in the real estate industry that specifies at any one time who owns a piece of property.
Title Company: a title company typically handles all tasks associated with the property title, including insurance and search.
Title insurance: insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
Title search: research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
Truth in Lending disclosure: a document that all lenders are required to provide when a borrower applies for a home loan. The document discloses interest rates, the amount to be loaned, plus the final cost of the loan upon maturity.
Underwriter: the company or service that evaluates a borrower’s creditworthiness prior to loan and mortgage approval.
VA loans: special, often discounted, home loans designed exclusively for military veterans.
Warranty deed: indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.
The new Downtown Burton Street Parking Deck is now open for our Main Office customers. Click here for more details.
Want to know when your check card has been used, funds have been deposited, or your balance is low?
Customized text1 alerts are just a few clicks away. Enroll in online banking, download our mobile app, and select text banking from the menu.
1AuburnBank does not charge any fees for text alerts. You are responsible for any data and text message fees imposed by your mobile service provider that may result from your use of the Mobile Banking Service.