Mortgage Glossary Terms

  • Abstract of Title     A written record of the historical ownership of the property that helps to determine whether the property can in fact be transferred from one party to another without any previous claims. An abstract of title is used in certain parts of the country when determining if there are any previous claims on the subject property in question.

  • Acceleration     A loan accelerates when it is paid off early, usually at the request or demand of the lender. An acceleration clause within a loan document states what must happen when a loan must be paid immediately, but usually it applies to nonpayment, late payments, or the transfer of the property without the lender’s permission.

  • Adjustable Rate Mortgage     A loan program where the interest rate may change throughout the life of the loan. An ARM adjusts based on terms agreed to between the lender and the borrower, but typically it may only change once or twice a year.

  • Alternate Credit     Items you must pay each month but that won’t appear on your credit report. Alternate credit accounts might include your telephone bill. In relation to mortgage loans, while such items aren’t reported as installment or revolving credit, they can establish your ability and willingness to make consistent payments in a responsible manner. Sometimes called nonstandard credit.

  • Alt Loans     Alternative loans, so-called because they’re not conventional or government loans but step outside the lending box and establish their own lending criteria.

  • Amortization     Amortization is the length of time it takes for a loan to be fully paid off, by predetermined agreement. These payments are at regular intervals. Sometimes called a fully amortized loan. Amortization terms can vary, but generally accepted terms run in five-year increments, from 10 to 40 years.

  • Annual Percentage Rate     The cost of money borrowed, expressed as an annual rate. The APR is a useful consumer tool to compare different lenders, but unfortunately it is often not used correctly. The APR can only work when comparing the same exact loan type from one lender to another.

  • Appraisable Asset     Any item whose value can be determined by a third-party expert. That car you want to sell is an appraisable asset. If the item can be appraised, then you can use those funds to buy a house.

  • Appraisal     A report that helps to determine the market value of a property. An appraisal can be done in various ways, as required by a lender, from simply driving by the property to ordering a full-blown inspection, complete with full-color photographs of the real estate. Appraisals compare similar homes in the area to substantiate the value of the property in question.

  • APR     See Annual Percentage Rate.

  • ARM     See Adjustable Rate Mortgage.

  • Assumable Mortgage     Homes sold with assumable mortgages let buyers take over the terms of the loan along with the house being sold. Assumable loans may be fully or nonqualifying assumable, meaning buyers take over the loan without being qualified or otherwise evaluated by the original lender. Qualifying assumable loans mean that while buyers may assume terms of the existing note, they must qualify all over again as if they were applying for a brand-new loan.

  • AUS     See Automated Underwriting System.

  • Automated Underwriting System     A software application that electronically issues a preliminary loan approval. An AUS uses a complex approval matrix that reviews credit reports, debt ratios, and other factors that go into a mortgage loan approval.

  • Automated Valuation Model     An electronic method of evaluating a property’s appraised value, done by scanning public records for recent home sales and other data in the subject property’s neighborhood. Although not yet widely accepted as a replacement for full-blown appraisals, many in the industry expect AVMs to eventually replace traditional appraisals altogether.

  • AVM     See Automated Valuation Model.

  • Balloon Mortgage     A type of mortgage where the remaining balance must be paid in full at the end of a preset term. A five-year balloon mortgage might be amortized over a 30-year period, but the remaining balance is due, in full, at the end of five years.

  • Basis Point     A basis point is a 1/100 percent change in rate. A move of 50 basis points would cause a 30-year fixed mortgage rate to change by 1/8 percent.

  • Bridge Loan     A short-term loan primarily used to pull equity out of one property for a down payment on another. This loan is paid off when the original property sells. Since they are short-term loans, sometimes lasting just a few weeks, usually only retail banks offer them. Usually the borrower doesn’t make any monthly payments and only pays off the loan when the property sells.

  • Bundling     Bundling is the act of putting together several real estate or mortgage services in one package. Instead of paying for an appraisal here or an inspection there, some or all of the buyer’s services are packaged together. Usually a bundle offers discounts on all services, although when they’re bundled it’s hard to parse all the services to see whether you’re getting a good deal.

  • Buydown     Paying more money to get a lower interest rate is called a permanent buydown, and it is used in conjunction with discount points. The more points, the lower the rate. A temporary buydown is a fixed-rate mortgage that starts at a reduced rate for the first period, and then gradually increases to its final note rate. A temporary buydown for two years is called a 2-1 buydown. For three years it’s called a 3-2-1 buydown.

  • Cash-Out     A refinance mortgage that involves taking equity out of a home in the form of cash during a refinance. Instead of just reducing your interest rate during a refinance and financing your closing costs, you finance even more, putting the additional money in your pocket.

  • Closer     The person who helps prepare the lender’s closing documents. The closer forwards those documents to your settlement agent’s office, where you will be signing closing papers. In some states, a closer can be the person who holds your loan closing.