Mortgage Terms

 

Adjustable-Rate Mortgage (ARM)
A mortgage loan with an interest rate that can change at any time, usually in response to the market or
Treasury Bill rates. These types of loans usually start off with a lower interest rate comparable to a fixed-
rate mortgage.

 

Amortize
Paying off a debt by making regular installment payments over a set period of time, at the end of which
the loan balance is zero.

 

Balloon Mortgage
A mortgage loan with initially low interest payments, but that requires one large payment due upon
maturity (for example, at the end of five or seven years).

 

Buy-down Mortgage
A mortgage loan in which one party pays an initial lump sum in order to reduce the homeowner’s
monthly payments.

 

Clear to Close

The clear to close letter is essentially the letter of final approval. It means that any conditions that had to be met for the loan to move forward have been met, whether those conditions are from the buyer's side or the lender's side. ... Once all of the loan conditions are met, a clear to close letter is issued.

Closing Disclosures (CD)

This is your final set of documents when you close a mortgage. They replace the old HUD-1 form. These disclose the terms of your loan and its costs. It should match the most recent Loan Estimate that you received when you locked your interest rate.

Collections
The efforts a mortgage company takes to collect past due payments.

 

Convertible ARM
An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain
time period.

 

Debt-to-Income (DTI)
Debt-to-Income (DTI) is a calculation frequently used by mortgage companies when qualifying
borrowers for a mortgage or a workout solution to resolve delinquency. It is calculated by comparing
how much you pay on your mortgage(s) to your gross monthly income.

 

Deed
A legal document under which ownership of a property is conveyed.
Deed-in-Lieu of Foreclosure (See Mortgage Release)

 

Default
A borrower is in default when they fail to meet the terms of their loan agreement. Usually this is based
on failure to make payments on time.

 

Deferred Payments
Payments that are authorized to be postponed as part of a workout process to avoid foreclosure.

 

Deficiency Balance
The difference between what a foreclosed home sold for and the remaining mortgage balance. The
mortgage company may require you to pay the amount of the deficiency balance.

 

Delinquency
Failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or
more days past due.

 

Equity
Ownership interest in a property. This is the difference between the home's market value and the
outstanding balance of the mortgage loan (as well as any other liens on the property).

 

Escrow
An account (held by the mortgage company) where a homeowner pays money toward taxes and
insurance of a home.

 

Escrow Account
The actual account where the escrow funds are held in trust.

 

Escrow Analysis
A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and
insurance on a home when they are due.

 

Fixed-Rate Mortgage
A mortgage loan in which the interest rate remains the same for the life of the loan.

 

Forbearance
An agreement to temporarily suspend or reduce monthly mortgage payments for a specific period of
time. The mortgage company will then postpone legal action when a homeowner is delinquent. A
forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the
overdue mortgage payments up to date.

 

Foreclosure
The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage
debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made
or when the homeowner is in default for a reason other than the failure to make timely mortgage
payments.

 

Foreclosure Prevention
Steps by which the mortgage company works with the homeowner to find a permanent solution to
resolve an existing or impending loan delinquency.

 

Hardship
Hardship is the reason why a homeowner is having trouble making their mortgage payments, such as
job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than 6 months)
or long term (more than 6 months). When contacting your mortgage company or a housing counselor
for assistance, homeowners may be required to demonstrate/explain any hardship they are
experiencing.


Hazard Insurance
Insurance coverage that pays for the loss or damage on a person's home or property (due to fire, natural
disasters, etc.).


Home Equity Line of Credit
A way of borrowing money against the equity or assets that the homeowner has in the home to pay for
things such as home repairs, college education, or other personal uses.

 

Interest-Only Mortgage
A mortgage where the homeowner pays only the interest on the loan for a specified amount of time.

 

Investor
The owner of the loan on a property.

 

Investment Property
A property not considered to be a primary residence that is purchased by an investor in order to
generate income, gain profit from reselling or to gain tax benefits.

 

Loan Estimate

This preliminary disclosure replaced the old Good Faith Estimate (GFE). It discloses the terms of a home loan, including its interest rate and the costs involved. You should get one within three days of applying for a mortgage, and updated estimates when there are material changes in your application.

Loan-to-Value (LTV)
Loan to value is a calculation frequently used by mortgage companies when qualifying borrowers for a
mortgage. It is calculated by dividing the mortgage balance by the home’s current market value.

 

Loss Mitigation
When the homeowner and the mortgage company are working together to determine the appropriate
option/workout solution to bring the mortgage current and avoid foreclosure.

 

Modification
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan
term.


Mortgage
A legal document that pledges property to the mortgage company as security for the repayment of the
loan. The term is also used to refer to the loan itself.


Mortgage Company
Mortgage companies may originate (i.e., your lender) as well as service the loan. The lender who
originated your mortgage may or may not service your loan. When the mortgage company services your
mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance,
generally manage your escrow accounts (i.e., they “service” your loan), and provide customer service
and support.


Mortgage Insurance
Insurance that protects the mortgage company against losses caused by a homeowner's default on a
mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner's down payment is
less than 20% of the purchase price.


Mortgage Interest
The amount a lender charges to borrow money to buy or refinance a home.


Mortgage Release (Deed-in-Lieu of Foreclosure)
The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and
avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.

 

Principal
The amount a person borrows from a lender (also referred to as "the amount financed").

 

Property Taxes
The amount a person pays to their local city/municipality and sometimes county, based on the value of
their property.

 

Quit Claim: A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

 

Refinance
A new mortgage with new terms, interest rates and monthly payments. The new loan completely
replaces the current mortgage and may lower your payment.

 

Repayment Plan
A homeowner promises to pay down past-due amounts on a mortgage over a specified time period
while still making regular monthly payments.

 

Short Sale (also called Pre-foreclosure)
The process in which a mortgage company works with a delinquent homeowner to sell the house by a
real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

 

Title
The documented evidence that a person or organization has ownership of real property.

The Truth in Lending Act

Intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably. 

 

Voluntary Conveyance
The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and
avoid foreclosure; also called a "Deed-in-Lieu of Foreclosure"

 

Workout
Options to resolve or restructure a loan or prevent someone from going into foreclosure.

Housing and Urban Development

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