Financial Terms Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
adjustable-rate mortgage (ARM)
A mortgage whose interest rate changes periodically based on the changes in a specified index.
adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
amortization
The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.
amortization term
The amount of time required to amortize the mortgage loan, expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).
appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (such as bank accounts, stocks, mutual funds, and so on).
assignment
The transfer of a mortgage from one person to another.
assumable mortgage
A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.
assumption
The transfer of the seller’s existing mortgage to the buyer.
assumption clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
B
balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump-sum payment to be due at the end of an earlier specified term.
balloon payment
The final lump-sum payment that is made at the maturity date of a balloon mortgage.
basis point
One one-hundredth of a percentage point. For example, 50 basis points on a $100,000 loan equals 0.50% or $500.
binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
biweekly payment mortgage
A mortgage that requires payments every two weeks instead of monthly. The 26 (or 27) biweekly payments are each equal to one-half of the standard monthly payment. This schedule usually results in substantial interest savings over the life of the loan.
blanket mortgage
A mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
breach
A violation of any legal obligation.
bridge loan
A short-term loan, usually secured by the borrower’s present home, that allows the proceeds to be used to close on a new house before the present home is sold. Also called a “swing loan.”
broker
A person who, for a commission or fee, brings parties together and assists in negotiating contracts between them.
buydown mortgage
A mortgage in which an initial lump-sum payment (temporary buydown) or a payment at closing (permanent buydown) is made to reduce the borrower’s interest rate or monthly payments.
C
call option
A provision in a mortgage that gives the lender the right to call the mortgage due and payable at the end of a specified period for whatever reason.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
cash-out refinance
A refinance in which the new loan amount exceeds the balance of the existing first mortgage plus closing costs and any subordinate liens, and the borrower receives the extra cash.
certificate of deposit (CD)
A deposit account with a fixed maturity date and specified interest rate. Penalties may apply for early withdrawal.
certificate of eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
certificate of reasonable value (CRV)
A document issued by the VA that establishes the maximum value and loan amount for a VA mortgage.
certificate of title
A statement from a title company, abstract company, or attorney confirming that title to real estate is legally held by the current owner.
chain of title
The history of all the documents that transfer title to a property, from the earliest existing document to the most recent.
change frequency
The frequency (in months) of payment and/or interest rate changes for an adjustable-rate mortgage (ARM).
clear title
Title that is free of liens or legal questions as to ownership of the property.
closing
The meeting at which a property sale is finalized; the buyer signs the mortgage documents and pays closing costs. Also called “settlement.”
closing cost item
A fee or amount that must be paid at closing for a single service, tax, or product (for example, origination fees, attorney’s fees, title insurance, and taxes).
closing statement (HUD-1)
The final statement of all costs and funds required to close a loan or purchase a home.
cloud on title
Any condition found in a title search that adversely affects the title to real estate and usually must be cleared by a release, quitclaim deed, or court action.
collateral
An asset (such as a car or home) pledged to guarantee repayment of a loan.
collection
The efforts used to bring a delinquent mortgage current and, if necessary, proceed toward foreclosure.
combination loan
A structure using a first mortgage (often 80% of value) and a second mortgage for the remaining balance (e.g., 80/10/10 or 80/20) often used to avoid mortgage insurance.
combined loan-to-value (CLTV)
The total unpaid principal of all mortgages on a property divided by the property’s appraised value.
co-maker
A person who signs a promissory note along with the borrower. The co-maker is equally responsible for repayment.
commission
The fee charged by a broker or agent for negotiating a transaction, usually a percentage of the sale or loan amount.
commitment letter (loan commitment)
A formal offer by a lender stating the terms under which it agrees to lend money to a buyer.
common areas
Portions of a building or development owned or managed by a homeowners’ association or co-op corporation and used by all unit owners (e.g., pools, corridors, parking areas).
Community Home Improvement Mortgage Loan
A financing option that allows low- and moderate-income buyers to obtain high-ratio financing for the purchase and modest repair of a home.
community property
In certain states, property acquired during marriage is presumed to be owned jointly unless designated as separate property.
comparables (“comps”)
Recently sold properties similar in size, location, and features to the subject property, used to estimate market value in an appraisal.
compound interest
Interest calculated on both the original principal and previously earned interest.
condominium conversion
Changing an existing building (usually rentals) to condominium ownership.
conforming loan
A mortgage that meets the size and underwriting standards set by agencies such as Fannie Mae and Freddie Mac (loan limits change periodically).
construction loan
A short-term loan used to finance building costs, with funds advanced as construction progresses.
consumer reporting agency (credit bureau)
An organization that prepares credit reports used by lenders to assess an applicant’s credit history.
contingency
A condition that must be met before a contract becomes binding (for example, a satisfactory home inspection).
conventional mortgage
A mortgage not insured or guaranteed by the federal government.
convertibility clause
A provision in some ARMs allowing the borrower to convert to a fixed-rate mortgage at specified times.
convertible ARM
An ARM that can be converted to a fixed-rate mortgage under certain conditions.
cooperative (co-op)
A form of ownership in which residents own shares in a corporation that owns the property and have the right to occupy a specific unit.
corporate relocation
Arrangements under which an employer moves an employee or a large portion of its workforce to another area.
cost of funds index (COFI)
An index used for some ARMs, reflecting the weighted-average cost of funds of certain savings institutions.
covenant
A clause in a mortgage that obligates or restricts the borrower; violation can result in foreclosure.
credit repository
An organization that gathers and stores credit information and public records on individuals.
D
deed
The legal document conveying title to a property.
deed in lieu
A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure.
deed of trust
In some states, the document used instead of a mortgage, conveying title to a trustee.
default
Failure to make mortgage payments or meet other mortgage terms.
delinquency
Failure to make mortgage payments when they are due.
depreciation
A decline in the value of property; the opposite of appreciation.
due-on-sale provision
A mortgage clause allowing the lender to demand immediate repayment if the borrower sells the property.
E
earnest money deposit
A deposit made by a potential buyer to show good faith in purchasing a property.
easement
A right of way giving others access to or over a property.
effective age
An appraiser’s estimate of a building’s physical condition, which may differ from its actual chronological age.
effective gross income
Normal annual income, including regular overtime and other stable sources, before taxes.
electronic funds transfer (EFT)
The electronic movement of funds between accounts.
encumbrance
Anything that affects or limits clear title to a property, such as mortgages, leases, easements, or restrictions.
endorser
A person who signs over ownership interest in a document to another party.
Equal Credit Opportunity Act (ECOA)
A federal law requiring lenders to make credit available without discrimination based on protected characteristics.
equity
The difference between a property’s fair market value and the amount still owed on its mortgage.
escrow
Money, property, or documents held by a third party and delivered when certain conditions are met (for example, tax and insurance funds held by a lender).
escrow account
The account in which a servicer holds escrow funds prior to paying property expenses.
escrow analysis
A periodic review of escrow accounts to confirm that deposits are sufficient to pay bills when due.
escrow collections
Funds collected by the servicer and set aside in escrow for property taxes, insurance, and related items.
escrow disbursements
Payments made from escrow funds for taxes, insurance, and other property expenses.
escrow payment
The portion of the monthly payment set aside in escrow for taxes, insurance, and similar items (sometimes called “impounds” or “reserves”).
estate
The total ownership interest in real and personal property, particularly at the time of an owner’s death.
eviction
The lawful removal of an occupant from real property.
examination of title
A review of public records to determine the status of a property’s title.
F
Fair Credit Reporting Act (FCRA)
A consumer protection law regulating how consumer credit reports are shared and how consumers can correct errors.
fair market value
The price a willing buyer would pay and a willing seller would accept, with neither under pressure.
Fannie Mae
A congressionally chartered, shareholder-owned company and major purchaser of mortgages in the U.S.
Fannie Mae’s Community Home Buyer’s Program
An income-based lending model with flexible underwriting for low- and moderate-income buyers, often coupled with home-buyer education.
fee simple
The greatest possible ownership interest in real estate.
Federal Housing Administration (FHA)
An agency within HUD that insures residential mortgages made by private lenders.
FHA mortgage
A mortgage insured by the FHA; often called a government mortgage.
finder’s fee
A fee or commission paid to a mortgage broker for securing a mortgage for a borrower.
first adjustment
The date on which the first rate change occurs on an ARM.
first mortgage
The primary lien against a property.
float-down option
An option allowing the borrower to lock a rate and later choose a lower rate if market rates decrease before closing.
fixed-rate mortgage (FRM)
A mortgage with an interest rate that remains the same for the entire term of the loan.
fixed second mortgage (home equity loan)
A second mortgage with a fixed interest rate and payment schedule.
flood insurance
Insurance covering property damage from flooding, required in certain flood-risk areas.
foreclosure
The legal process by which a lender takes ownership of a property when the borrower defaults.
fully amortized ARM
An ARM with monthly payments sufficient to repay the loan in full over the amortization term.
G
good faith estimate
An estimate of closing costs and fees that a borrower is likely to incur in connection with a mortgage.
H
hazard insurance
Insurance protecting against loss to real estate caused by fire and certain other risks.
home equity line of credit (HELOC)
A revolving line of credit secured by a second deed of trust on a home; works similarly to a credit card.
home equity loan
A fixed-amount loan secured by a second deed of trust on a home, often used for home improvements.
housing ratio (front-end ratio)
The monthly housing payment (PITI) divided by gross monthly income.
HUD
The U.S. Department of Housing and Urban Development.
I
index
A published interest rate (such as the 1-year Treasury, 6-month LIBOR, or COFI) to which an ARM’s rate is tied.
impound account
Another term for an escrow account used to pay taxes and insurance.
interest-only loan option
A loan in which, for a set period, monthly payments cover only interest and not principal, reducing payments during that period.
J
jumbo mortgage
A mortgage with a loan amount above the conforming loan limit; usually carries higher interest rates.
L
lien
A legal claim against property for the payment of a debt.
lender
The bank, mortgage company, or broker offering the loan.
LIBOR
The London Inter-Bank Offered Rate, an international interest-rate index often used for ARMs.
lifetime cap
The maximum interest rate allowed over the life of an ARM.
loan-to-value ratio (LTV)
The mortgage balance divided by the property’s appraised value.
lock period
The length of time a lender guarantees a specific interest rate.
lock-in
A written agreement guaranteeing a specified interest rate and points for a set time before closing.
M
margin
The fixed number of percentage points added to an index to determine the ARM rate at each adjustment.
maturity date
The date on which an account or loan reaches the end of its term and principal can be withdrawn without penalty.
mortgage
A legal document pledging a property as security for repayment of a debt.
mortgage disability insurance
Insurance that covers mortgage payments if the borrower becomes disabled under the terms of the policy.
mortgage insurance (MI)
Insurance protecting lenders against loss if a borrower defaults, usually required with high LTV loans.
mortgagee
The lender who receives the mortgage.
mortgagor
The borrower who gives the mortgage.
N
negative amortization
Occurs when the mortgage payment is less than the interest due, causing the loan balance to increase.
non-conforming loan (jumbo)
A conventional mortgage that does not meet conforming guidelines. Typically carries higher rates and fees.
O
origination fee
A fee charged by a lender to cover processing expenses in making a real estate loan, usually a percentage of the loan amount.
owner financing
A transaction in which the property seller provides all or part of the financing.
P
periodic cap
The maximum interest-rate increase allowed during a single adjustment period on an ARM.
PITI
Principal, Interest, Taxes, and Insurance – the standard components of a monthly mortgage payment.
planned unit development (PUD)
A subdivision with individually owned lots plus shared common areas or facilities.
points
Charges levied by a lender, expressed as a percentage of the loan amount; one point equals 1% of the loan.
prepaids
Property-related expenses paid in advance, such as taxes and insurance, often prorated at closing.
prepayment penalty
A charge imposed for paying off part or all of a mortgage ahead of schedule.
principal
The original amount of a loan or the amount still owed, excluding interest.
private mortgage insurance (PMI)
Insurance provided by private insurers protecting lenders against loss if a borrower defaults on a high-LTV loan.
Q
qualifying ratios
Ratios comparing a borrower’s fixed monthly obligations (including PITI) to gross monthly income to determine borrowing capacity.
R
rate
The annual interest rate on a loan, expressed as a percentage.
rate cap
A limit on how much the interest rate can change, either per adjustment period or over the life of the loan.
rate lock-in
Another term for lock-in; a written guarantee of a specific interest rate for a set time.
rebate
Compensation from a wholesale lender that can be applied toward closing costs or refunded to the borrower (often associated with higher interest rates).
refinancing
Paying off one loan with the proceeds from a new loan secured by the same property.
residential mortgage credit report (RMCR)
A detailed credit report used by lenders that includes information from multiple credit bureaus and the loan application.
S
seller carryback
An arrangement where the seller provides financing to the buyer, often in conjunction with an existing or assumed mortgage.
simple interest
Interest calculated only on the principal amount, not on previously earned interest.
stated/documented income
Loan products where the borrower states the source of income and may provide limited documentation.
subordination
An agreement that allows a new first mortgage to take priority while an existing second mortgage remains in the subordinate position.
survey
A drawing showing boundary measurements, the location of improvements, and sometimes area and topography of a parcel of land.
T
tenants in common
A form of co-ownership where each owner holds an undivided interest that may be unequal and does not carry a right of survivorship.
title insurance
Insurance protecting against loss due to defects in a property’s title.
title search
An investigation into the history of a property’s title to identify liens, unpaid claims, or restrictions.
total debt ratio (back-end ratio)
Total monthly debt obligations (including housing) divided by gross monthly income.
V
variable rate
An interest rate that may change over time after an account or loan is opened.
If you want, I can also turn this into:
A two-column layout plan (letters on left, terms on right)
A toggle/accordion structure for each letter for Divi/Elementor.