Common Mortgage Terms and Definitions
Some terms commonly found in mortgage loan glossary are the following:
Amortization Repayment of a mortgage loan through equal periodic payments (monthly typically) calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Annual Percentage Rate (APR) A percentage that represents the cost of a loan expressed as a yearly interest rate, and inlcudes the interest, points, mortgage insurance, and other fees associated with the loan.
Adjustable Rate Mortgage (ARM) A mortgage loan that is adjusted on the basis of changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender. The change in the monthly payment, however, is usually subject to a Cap.
Assumable Mortgage A mortgage that can be transferred from a seller to a buyer making the latter fully responsible for repaying the installments on the remaining balance of the loan.
Balloon Mortgage A mortgage that typically offers low rates for an initial period (usually 5, 7, or 10 years) but the balance is due in full upon the completion of that period. The borrower has of course the option of re-financing that balance at the end of the loan term.
Blanket Mortgage A mortgage collateralized by at least two pieces of property as security for the same mortgage. This reduces the lender’s risk who may provide the loan for a lower rate.
Conventional Loan A loan that is not guaranteed or insured by the U.S. government (a private-sector loan).
Debt Coverage Ratio (DCR) An indicator of the mortgage payment required to service the loan on income-producing property relative the net operating income generated by the property.
Escrow Refers to a neutral third party assigned to handle all the paperwork of settlement or closing of the transaction, according to the terms agreed by the buyer and the seller.
Escrow Account A separate account into which the lender puts a portion of each monthly mortgage payment to cover funds needed for such expenses as property taxes, home-owners insurance, mortgage insurance, etc.
Hard Money Loans Equity loans based on the unencumbered property value and its saleability. For this reason, the lender usually does not take into consideration the borrower’s credit and income earning capacity. The combined loan-to-value ratio is usually less than 65% and closing can be very fast (sometimes in 2 days or less).
Refinancing Refinancing is the replacement of one secured loan with another loan (usually with better terms, or safer terms, such as a fixed-rate as opposed an adjustable one) using as collateral the same asset. Refinancing can be provided by the same lender that provided the original loan or by another lender. The proceeds from the new loan are used to repay the original loan