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Glossary

Acceleration clause: A mortgage contract provision that gives the lender the right to demand payment of the entire outstanding balance if you miss a monthly payment, sell the property, or otherwise fail to perform as promised under the terms of your mortgage.
Adjustable-rate mortgage (ARM): A mortgage whose interest rate and monthly payments vary throughout its life. ARMs typically start with an unusually low interest rate that gradually rises over time. If the overall level of interest rates drops, as measured by a variety of different indexes, the interest rate of an ARM generally follows suit. Similarly, if interest rates rise, so does a mortgage's interest rate and monthly payment. The amount that the interest can fluctuate is limited by caps. Before you agree to an adjustable-rate mortgage, be sure that you can afford the highest payments that would result if the interest rate on your mortgage increased to the maximum allowed.
Adjustment period or adjustment frequency: How often the interest rate for an adjustable-rate mortgage changes. Some adjustable-rate mortgages change every month, but one or two adjustments per year is more typical. The less frequently your loan rate shifts, the less financial uncertainty you may have. But less frequent adjustments in your mortgage rate means that you will probably have a higher teaser rate or initial interest rate. (The initial interest rate is also called the "start rate.")
Amortization
Annual percentage rate (APR): A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result, the APR is invariably higher than the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages aren't held for their full 15- or 30-year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
Appraisal: A professional opinion about the market value of the house you want to buy (or already own if you're refinancing your loan). You must pay for the mortgage lender to hire an appraiser, because this opinion helps protect the lender from lending you money on a home that's not worth enough (in the event that you default on the loan and the lender must foreclose on the property).
Appreciation: The increase of a property's value.
Assessed value: The value of a property (according to the local county tax assessor) for the purpose of determining property taxes.
Assumable mortgage
Balloon loans: Loans that require level payments, just as a 15- or 30-year, fixed-rate mortgage does, but well before their maturity date (typically three to ten years after the start date), the full remaining balance of the loan becomes due and payable. Although balloon loans can save you money because they charge a lower rate of interest relative to fixed-rate loans, balloon loans are dangerous. Being able to refinance a loan is never a sure thing.
Blanket mortgage
Blended payments
Bridge loan: A loan that enables you to borrow against the equity that is tied up in your old home until it sells. These loans can help if you find yourself in the generally inadvisable situation of having to close on a new home before you have sold your old one. Bridge loans are expensive compared to other alternatives, such as using a cash reserve, borrowing from family, or using the proceeds from the sale of your current home. In most cases, you need the bridge loan for only a few months in order to tide you over until you sell your house. Thus, the loan fees can represent a high cost (about 10 percent of the loan amount) for such a short-term loan.
Cap: One of two different types of limits for adjustable-rate mortgages. The life cap limits the highest or lowest interest rate that is allowed over the entire life of a mortgage. The periodic cap limits the amount that an interest rate can change in one adjustment period. A one-year ARM, for example, may have a start rate of 5 percent with a plus or minus 2-percent periodic adjustment cap and a 6-percent life cap. On a worst-case basis, the loan's interest rate would be 7 percent in the second year, 9 percent in the third year, and 11 percent (5 percent start rate plus the 6 percent life cap) forevermore, starting with the fourth year.
Closed mortgage
Closing costs: Costs that generally total from 2 to 5 percent of a home's purchase price and are completely independent of (and in addition to) the down payment. Closing costs include such expenses as points (also called the loan origination fee), an appraisal fee, a credit report fee, mortgage interest for the period between the closing date and the first loan payment, homeowners insurance premium, title insurance, pro-rated property tax, and recording and transferring charges. When you are finally ready to buy your dream home, don't forget that you must have enough cash to pay all these costs in order to complete the purchase.
Compound interest: Interest on both the original principal and on interest accrued. The words compounded and calculated are synonymous when used in connection with interest paid on a mortgage.
Contingencies: Conditions contained in almost all home-purchase offers. The seller or buyer must meet or waive all their respective contingencies before the deal can be closed. These conditions are related to such factors as the buyer's review and approval of property inspections or the buyer's ability to obtain the mortgage financing specified in the contract. If you're a home buyer, make absolutely certain that your offer contains a loan contingency.
Contract
Conventional mortgage
Convertible adjustable-rate mortgages
Cooperatives (co-ops): Apartment buildings where residents own a share of a corporation whose main asset is the building they live in. Cooperative apartments are generally harder to finance and harder to sell than condominiums.
Cosigner: A friend or relative who comes to a borrower's rescue by co-signing (which literally means being indebted for) a mortgage. If you have a checkered past in the credit world, you may need help securing a mortgage, even though you are currently financially stable. A cosigner can't improve your credit report but can improve your chances of getting a mortgage. Cosigners should be aware, however, that cosigning for your loan will adversely affect their future creditworthiness, because your loan becomes what is known as a contingent liability against their borrowing power.
Credit cards
Credit line: A credit account that permits a reverse mortgage borrower to control the timing and amount of the loan advances (also known as a "line of credit").
Credit report: A report that documents your history of repaying debt. It's the main report lenders utilize to determine your creditworthiness. You must pay for this report, which is used to determine your ability to handle all forms of credit and to pay off loans in a timely fashion. If you're a seller who's providing financing for buyers, get their permission to obtain a credit report on them.
Debt service: Cost of paying interest for the use of mortgage money.
Debt-to-income ratio: Measures your future monthly housing expenses, which include your proposed mortgage payment (debt), property tax, and insurance in relation to your monthly income. Mortgage lenders generally figure that you shouldn't spend more than about 33 to 40 percent of your monthly income on housing costs.
Deeds
Default: Status that is most often caused by failure to make monthly mortgage payments on time. You are officially in default when you have missed two or more monthly payments. Default also refers to other violations of mortgage terms such as trying to pass your loan on to another buyer when the property is sold, which triggers the loan's due-on-sale clause. Default can lead to foreclosure on your house.
Deferred payment loans: Reverse mortgages providing lump sums for repairing or improving homes.
Delinquency: Status that occurs when the mortgage lender does not receive a monthly mortgage payment by the due date. At first a borrower is delinquent; then he or she is in default.
Deposits
Depreciation: Decrease in a property's value (the reverse of appreciation).
Down payment: The part of the purchase price that the buyer pays in cash, up front, and does not finance with a mortgage. Generally, the larger the down payment, the better the deal that you can get on a mortgage. You can usually qualify for the best available mortgage programs with a down payment of 20 percent of the property's value.
Due-on-sale clause: A mortgage clause that entitles the lender to demand full payment of all money due on a loan when the borrower sells or transfers title to the property.
Early renewal
Encumbrance: A right or interest someone else holds in a homeowner's property that affects its title or limits its use. A mortgage, for example, is a money encumbrance that affects a home's title by making it security for repayment of the loan.
Equity
Equity conservation: A reverse mortgage feature permitting borrowers to pre-select their debt limit.
Escrow: The holding of important documents and money related to the purchase sale of real estate by a neutral third party (the escrow officer) prior to the close of the transaction. After the seller accepts an offer, the buyer doesn't immediately move into the house. A period when contingencies have to be met or waived exists. During this period, the escrow service holds the down payment and other buyer and seller documents related to the sale. "Closing escrow" means that the deal is completed. Among other duties, the escrow officer makes sure that the previous mortgage is paid off and the loan is funded.
Fixed-rate mortgage: A mortgage that allows you to lock in an interest rate for the entire term (generally 15 or 30 years) of the mortgage. Your mortgage payment will be the same amount every month.
Fixed-term reverse mortgage: A reverse mortgage that becomes due and payable on a specific date.
Foreclosure
Frequency of interest calculations
Graduated-payment mortgage: A rare loan specifying monthly payments that increase by a predetermined formula (for example, a 3-percent increase each year for seven years, after which time payments no longer fluctuate).
Gross Debt Service Ratio (GDS): The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, space heating, and 50% of condominium fees, if applicable).
High-ratio mortgage: This is a mortgage which finances between 75% to 95% of the purchase price or appraised value of the home, whichever is lower.
Home equity conversion: The reverse mortgage process of turning home equity into cash without having to sell or rent the home or make regular loan repayments.
Home equity loan: Technical jargon for a type of second mortgage that allows you to borrow against the equity in your house. If used wisely, a home equity loan can help people payoff high-interest, non-tax-deductible consumer debt or meet other short-term needs, such as payments on a remodeling project.
Home inspection
Hybrid loans: Loans that combine features of fixed-rate and adjustable-rate mortgages. The initial interest rate for a hybrid loan may be fixed at the same rate for the first three to ten years of the loan (as opposed to only six to twelve months for a standard adjustable-rate mortgage); then the interest rate adjusts biannually or annually. The longer the interest rate remains the same, the higher the initial interest rate will be. These loans are best for people who plan to own their house for a short time (fewer than ten years) and who do not like the volatility of a typical adjustable-rate mortgage.
Interest rate
Late charge: A lender fee charged if a mortgage payment is received late. Late charges can be as much as 5 percent of your mortgage payment, so be sure to get your loan payments in on time.
Leasehold mortgage
Lien: A legal claim against a property for the purpose of securing payment for work performed and money owed on account of loans, judgments, or claims. Liens are encumbrances that must be paid off before a property can be sold or title can transfer to a subsequent buyer. The liens that are a matter of public record on a property for sale appear on a property's preliminary report.
Life cap: The limit that determines the maximum amount your adjustable-rate mortgage interest rate and monthly payment can fluctuate up or down during the duration of the loan. The life cap is different from the periodic cap that limits the extent to which your interest rate can change up or down in anyone adjustment period.
Lifetime advances: On a reverse mortgage, fixed monthly loan advances for the rest of a borrower's life.
Loan advances: Payments made to a reverse mortgage borrower or to another party on behalf of a borrower.
Lock-in: A mortgage lender's written commitment to guarantee a specified interest rate to the mortgage borrower provided that the loan is closed within a set period of time. The lock-in should specify the number of points to be paid at closing. For the privilege of locking in the rate in advance of the closing of a loan, you may pay a slight interest rate premium.
Lump sum: A single loan advance at closing of particular reverse mortgage loans.
Market value: Market value is the worth of a property, or the amount of rent that can be collected, relative to a specific time or real estate market. It is the largest amount of money a knowledgeable, rational, and unpressured buyer or tenant would pay for a particular property in an open, competitive market. In other words, a property is worth what someone is prepared to pay either to buy or rent it. The market value focuses on the buyer's or tenant's actions, not on the owner's costs, needs, or dreams.
Lending value, used by mortgage lenders to establish the amount of money a consumer may borrow, is a very conservative estimate of value and often considerably lower than market value.
Maturity: When a loan becomes due and payable.
Mortgage broker: A person who can help you obtain a mortgage. Mortgage brokers buy mortgages wholesale from lenders, mark the mortgages up (typically from 0.5 to 1 percent), and sell them to buyers. A good mortgage broker is most helpful for people who don't want to shop around on their own for a mortgage or for people who have blemishes on their credit reports.
Mortgage commitment: A written offer of a mortgage loan by a lending institution, generally in the form of a letter. The commitment specifies the terms and conditions of the mortgage loan being offered to the prospective borrower.
Mortgagee: An individual or institutional lender that holds a mortgage on property as security for a loan.
Mortgage life insurance: Insurance guaranteeing that the lender will receive its money in the dismal event that the borrower meets an untimely demise. Those who sell this insurance will try to convince you that you need this insurance to protect your dependents and loved ones. Don't waste your money -mortgage life insurance is relatively expensive compared to low-cost, high-quality term life insurance.
Mortgagor: A person who offers a mortgage on property in exchange for cash consideration.
Negative amortization: Occurs when an outstanding mortgage balance increases despite the fact that the borrower is making the required monthly payments. Negative amortization occurs with adjustable-rate mortgages that cap the increase in the monthly loan payment but do not cap the interest rate. Therefore, the monthly payments do not cover all the interest that the borrower actually owes.
Nominal interest rate: The quoted interest rate for a mortgage loan.
Non-recourse mortgage: A loan in which a lender can only use the value of the home as security for repayment of the mortgage in the event of a loan default.
Occupancy agreements
Open mortgage
Order of sale: Term used in the mortgage document to refer to the mortgagee's (lender's) right to sell the home, in many cases without court approval, in order to recover the full principal and interest outstanding. Generally used in the case of default of payment by the owner. If there is any money left after the property is sold, and after the lender has recovered its principal, interest and costs, the borrower would receive the balance.
Origination: The administrative process of setting up a mortgage, including the preparation of documents.
Payment schedules
Percent of value pricing: Basing the total amount owed on a reverse mortgage on a percentage of a home's value at maturity of the loan.
Periodic cap: The limit on the amount that the interest rate of an adjustable-rate mortgage can change up or down in one adjustment period.
Piggyback mortgage
Points: Interest charges paid up-front when a borrower closes on a loan. Also known as a loan's origination fee, points are actually a percentage of the total loan amount (one point is equal to 1 percent of the loan amount). For a $100,000 loan, one point costs $1,000. Generally speaking, the more points that a loan has, the lower its interest rate should be. All the points paid on a purchase mortgage are deductible in the year they are paid. If you refinance your mortgage, however, the points that you pay at the time that you refinance must be amortized (spread out) over the life of the loan. If you get a 30-year mortgage when you refinance, for example, you can deduct only one-thirtieth of the points on your taxes each year.
Portable mortgage
Power of sale
Pre-approved mortgage
Prepayment penalty: A fee that discourages borrowers from making additional payments on their mortgage loan principal in order to pay the loan off faster. We highly urge you to avoid mortgages that penalize prepayment.
Prepayment privilege
Prequalification: An informal process whereby lenders, based entirely upon the information you disclose about your financial situation, provide an opinion about the amount of money you may be able to borrow. This assessment is neither binding nor necessarily accurate because the lenders haven't verified any of your financial information.
Preapproval: A process -far more rigorous than prequalification -that mortgage lenders use to determine how much money they'd lend you based upon a thorough review of your financial situation. Getting a preapproval letter strengthens your negotiating position when you're buying a home, because it shows the sellers your seriousness and creditworthiness.
Principal
Private mortgage insurance (PMI): Insurance that protects the lender in case a borrower defaults on a mortgage. If your down payment is less than 20 percent of your home's purchase price, you will likely need to purchase private mortgage insurance (also known as "mortgage default insurance"). The smaller the down payment, the more likely a homebuyer is to default on a loan. Private mortgage insurance can add hundreds of dollars per year to your loan costs. After the equity in your property increases to 20 percent, you no longer need the insurance. Don't confuse this insurance with mortgage life insurance.
Property tax: Yearly tax (paid by the owner) assessed on a home. Property tax annually averages 1 to 2 percent of a home's value.
Property tax accounts
Real property: Dirt. Plain old terra firma and any buildings such as homes, garages, tool sheds, barns, or other structures permanently attached to the land.
Refinance: Lending industry jargon for taking out a new mortgage loan (usually at a lower interest rate) to pay off an existing mortgage (generally at a higher interest rate). Refinancing (also called a refi) is not automatic, nor is refinancing guaranteed. Refinancing can also be an expensive hassle. Carefully weigh the costs and benefits of refinancing.
Reverse mortgage
Second mortgage
Shared appreciation: An itemized reverse mortgage loan cost based on a percent of any increase in the value of a home during the term of the loan.
Shared equity: An itemized reverse mortgage cost based on a percent of a home's value at loan maturity.
Stock market
Teaser rate: The attractively low interest rate that most adjustable-rate mortgages start with. This rate is also known as the initial interest rate.
Tenure advances: Fixed monthly reverse mortgage loan advances for as long as a borrower lives in a home.
Term
Term advances: Fixed monthly reverse mortgage loan advances for a specific period of time.
The history of Canadian money
The history of money
Title insurance: Insurance that covers the legal fees and expenses necessary to defend your title against claims that may be made against your ownership of the property. The extent of your coverage depends upon whether you have an owner's standard coverage or extended-coverage title insurance policy. To get a mortgage, you also have to buy a lender's title insurance policy to protect your lender against title risks.
Title search: Research of records in registry or land titles office to determine history and sequence of ownership of property.
Umbrella mortgage
Variable-rate mortgage
Vendor take back mortgage

Real Estate

Addenda: Clauses, documents, or statements added to a contract that alter it in some way. To be enforceable, an addendum must be signed or initialed by both buyer and seller and clearly referenced in the body of the contract. For example, a contract might refer to an addendum by saying that" An addendum is attached to and made a part of this contract."
Agent: Has two meanings in real estate. First, in general terms, someone who acts on behalf of another frequently for a fee, such as a real estate broker or an attorney. Second, a type of real estate licensee who works under the authority of a real estate broker.
Appraiser: A person familiar with local real estate values who estimates the worth of particular properties. Compensation for the appraiser cannot be related to a specific estimate of value, nor can the appraiser have an undisclosed interest in the property.
"AS IS" Agreements: Situations where property is sold without warranty and in whatever physical condition it may be in as of the time a contract is signed. Before entering such deals, both buyers and sellers should check state and local regulations and warranty rules to see if and how "AS IS" sales are affected by such laws.
Brokers: A licensed real estate professional employed by a buyer or seller to assist in a purchase or sale of real property. A broker's duties may include determining market values, advertising properties for sale, showing properties to prospective purchasers, assisting in the preparation of contracts, advising clients with regard to the acceptance or rejection of an offer or counteroffer, and dealing with a wide variety of related matters. While brokers have traditionally represented sellers, they can also be hired by purchasers, a concept known as "buyer brokerage." The term broker is often used in a general sense when either a broker or agent (or both) might be appropriate in certain situations.
Co-owners: Two or more people with an interest in a single parcel of property. Co-ownership is an extremely important issue, since the form of co-ownership shown on a title may affect such matters as estates, inheritances, and personal liability in the event of a lawsuit.
Contingent Contract: A contract with a qualification or condition that must be resolved before the contract is final.
Damages: An entitlement to compensation for a loss or injury. Damages may be recovered by any person who has suffered loss, detriment, or injury through an unlawful act, omission, or negligent act of another.
Easement: A right to use someone else's property. Sometimes easements are created without an owner's permission or knowledge.
Encroachment: An intrusion, obstruction, or invasion of someone else's property. For example, if a neighbor just built a fence and the fence is six inches over your property line, it's an encroachment.
Facilitator: An individual who works with buyers and sellers in an effort to help both parties complete a real estate transaction. Unlike a traditional real estate broker, a facilitator does not represent either a buyer or a seller.
Fixtures: Items that usually convey to the buyer in a realty transaction unless specifically excluded from the sale. Fixtures are generally attached to the property and intended to be a part of the property.
Gift: The voluntary transfer of money, property, or something of value from one person to another without any duty or expectation of repayment. Since gifts in the context of a real estate transaction may be large, donors should check with a tax attorney before making a gift commitment to assure that all tax consequences are understood.
Loan Origination Fee: A fee charged by lenders to cover loan processing costs, often equal to 1 percent of the loan's value.
Merge: To absorb or fuse one document or right into another. In real estate, this usually means the sales contract is merged into or becomes a part of the deed. Once this merger takes place, the terms of the real estate contract are no longer in effect. However, if a real estate contract says that a portion of the document-or the complete document-is to "survive," then that material will not be merged into the deed.
Offer: A proposal which, when accepted, will become a contract. In real estate, the buyer commonly makes a written offer to purchase property, which may then be accepted, rejected, or countered by the seller. Offers may be withdrawn without penalty at any time prior to acceptance, unless the offer provides otherwise. If a proposal is rejected, it may not be resurrected without permission of the person who made the offer.
Quitclaim Deed: A deed that says, in effect, "whatever title I have, I hereby give to you." Unfortunately, the seller who offers a quitclaim deed may have no rights or interests to sell. Always consult an attorney before agreeing to any deal that involves a quitclaim deed.
Remedies: Forms of compensation, such as money or actions, that are granted by a court in response to a wrongful situation or condition.
Satisfaction: Acceptance by one or both parties on the completion of an obligation.
Settlement (Closing): The act or process of adjusting and finalizing all dealings, money, and arrangements for real estate buyers and sellers. At settlement, all adjustments are made as of the date of the settlement, all money is properly disbursed, the deed is prepared with the new owner's name, and the property is conveyed in accordance with the terms of the contract and the intentions of the parties.
Subject To: An offer or contract that depends on a separate condition or action.
Survey: An examination of the boundaries of real property and the improvements on it: A survey can reveal the quantity of land, boundary distances, the location of improvements on the property such as the house, and other vital information about the property.
Tenancies: Interests in real estate defined in the deed. A vitally important matter which shows how title to the property is held.
Tenant: An individual or entity, such as a business, that occupies someone else's property. Note that while "tenancies" usually describe forms of property ownership, a "tenant" does not own property.
Termites: Wood-boring insects that can infest and damage homes. Most realty sales require a termite inspection, showing the property is free and clear of termites and other wood-boring insects. Such inspections should also list insect damage, if any.
Title: The right of property ownership. Such ownership can be held solely, jointly, or in common. In many states title can be held in corporate or in partnership form.
Warranties: Guarantees, promises, and protections provided by one party to another. In real estate contracts, there are usually warranties regarding the condition of the appliances and certain fixtures. New homes often have extensive warranties covering not only fixtures and appliances, but the overall structure of the house as well.

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