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Mortgage Glossary

ADJUSTMENT DATE

The date the interest rate changes on an adjustable rate mortgage.

ADJUSTABLE-RATE MORTGAGE – ARM

A type of mortgage where the interest rate varies based on a particular index, normally the prime lending rate.

AGENT

A person who has been appointed to act on behalf of another for a particular transaction.

AMORTIZATION

The repayment of a loan through regular periodic payment.

AMORTIZATION SCHEDULE

The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and interest fees.

ANNUAL PERCENTAGE RATE – APR

The total yearly cost of a mortgage stated as a percentage of the loan amount, including the base interest rate, primary mortgage insurance, and loan origination fee (points).

APPLICATION

A form used to apply for a mortgage loan that details a potential borrower’s income, debt, savings and other information used to determine credit worthiness.

APPRAISAL

A ”defensible” and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser.

APPRECIATION

The natural rise in property value due to market forces.

ASSESSED VALUE

The value of a property according to jurisdictional tax assessment.

ASSIGNMENT

Transfer of ownership of a mortgage usually when the loan is sold to another company.

BASIS POINT

1/100th of one percent.

BILL OF SALE

A physical receipt indicating the sale of property.

BUYER’S MARKET

A situation in which the supply of properties available exceeds demand. As a result, sellers are forced to lower their prices to attract buyers.

CAP

A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease in any single adjustment or over the life of the loan.

CASH-OUT REFINANCE

Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.

CERTIFICATE OF TITLE

A document designating the legal owner of a parcel of real estate. Usually provided by a title or abstract company.

CHAIN OF TITLE

The complete history of ownership of a piece of property.

CITY/COUNTY TAX STAMP

A tax that is required in some municipalities if a property changes hands or a new mortgage is obtained. The amount of this tax can vary with each state, city and county.

CLEAR TITLE

Ownership of property that is not encumbered by any counter-claim or lien.

CLOSING COSTS

All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal.

CLOSING DAY

The date on which the title for property passes from the seller to the buyer, and/or the date on which the borrower signs the mortgage.

CLOSING STATEMENT

The document detailing the final financial arrangement between a buyer and seller and the costs paid by each.

COLLATERAL

An asset which is placed at risk to secure the repayment of a loan.

COMMITMENT LETTER

A formal offer by a lender stating the terms under which the lender agrees to loan money to a borrower.

COMPARABLES

An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property whose value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.

CONSTRUCTION LOAN

A loan made to a builder or homeowner that finances the initial construction of a property, but is replaced by a traditional mortgage once the property is completed.

CONTINGENCY

Something that must occur before something else happens. Often used in real estate sales when a buyer must sell a current home before purchasing a new one. Or, when a buyer makes an offer that requires a complete home inspection before it becomes official.

CONTRACT

A legally binding agreement, oral or written, between two parties.

CONVENTIONAL MORTGAGE

A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.).

COSIGNER

Another person who signs your loan and assumes equal responsibility for it.

CREDIT BUREAU

An agency that gathers and keeps your credit record (e.g., Experion, Equifax and TransUnion).

CREDIT HISTORY

A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

CREDIT REPORT

A detailed report of an individuals credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.

DEBT

An obligation to repay some amount owed. This may or may not be monetary.

DEED

A document indicating the ownership of a property.

DEFAULT

The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

DEPOSIT

Cash given along with an offer to purchase property, Also called EARNEST MONEY.

DEPRECIATION

The natural decline in property value due to market forces or depletion of resources.

DISCOUNT POINTS

Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.

DISTRESSED PROPERTY

A mortgaged property which has been foreclosed on.

DOWN PAYMENT

An amount paid in cash for a property, with the intent to mortgage the remaining amount due.

EARNEST MONEY DEPOSIT

A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.

EASEMENT RIGHTS

A right of way granted to a person or company authorizing access to or over the owner’s land. Electric companies often have easement rights across your property.

ENCUMBRANCE

A claim against a property. Examples are mortgages, liens and easements.

EQUAL CREDIT OPPORTUNITY ACT – ECOA

U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex, etc.

EQUITY

The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property.

ESCROW

An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property.

ESCROW ACCOUNT

The account in which funds are held by the lender for the payment of real estate taxes and/or homeowners insurance. This can also refer to the account in which that funds are held for the completion of repairs or improvements to a property that cannot be completed prior to closing.

FAIR CREDIT REPORTING ACT

A consumer protection law that sets up a procedure for correcting mistakes on one’s credit record.

FAIR MARKET VALUE

The price at which two unrelated parties, under no duress, are willing to transact business.

FANNIE MAE

A private, shareholder-owned company that works to make sure mortgage money is available for people to purchase homes. Created by Congress in 1938, Fannie Mae is the nation’s largest source of financing for home mortgages.

FEDERAL HOUSING ADMINISTRATION – FHA

A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930’s to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders.

FHA MORTGAGE

A mortgage that is insured by the Federal Housing Administration (FHA).

FIRST MORTGAGE

The primary loan or mortgage secured by a piece of property.

FIXED-RATE MORTGAGE

A mortgage which has a fixed rate of interest over the life of the loan.

FLOOD INSURANCE

Supplemental insurance which covers a homeowner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA-designated flood zones.

FORECLOSURE

The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan.

GOVERNMENT MORTGAGE

Any mortgage insured by a government agency, such as the FHA or VA.

HOME EQUITY LINE OF CREDIT

A type of mortgage loan that allows the borrower to draw cash against the equity in his home.

HOME INSPECTION

A complete examination of a building to determine its structural integrity and uncover any defects in materials or workmanship which may adversely affect the property or decrease its value.

HOMEOWNER’S ASSOCIATION

An organization of homeowners in a particular neighborhood or development formed to facilitate the maintenance of common areas and to enforce any building restrictions or covenants.

HOMEOWNER’S ASSOCIATION FEE

A term related to a condominium associations collection of money from the owners of each condominium. In determining whether you can afford the property, the lender will calculate the homeowner’s association fee as part of your housing-to-income ratio. The fee pays for common expenses including insurance, maintenance, trash removal and is used to establish reserves for future major expenditures.

HOMEOWNER’S INSURANCE

A policy which covers a homeowner for any loss of property due to accident, intrusion or hazard.

HUD-1 STATEMENT

A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated CLOSING COSTS connected with a particular property purchase.

INSURABLE TITLE

The title to property which has been sufficiently reviewed by a title insurance company, such that they are willing to insure it as free and clear.

INTEREST RATE

A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.

INVESTMENT PROPERTY

Any piece of property that is expected to generate a financial return. This may come as the result of periodic rents or through appreciation of the property value over time.

JOINT TENANCY

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

LATE CHARGE

An extra charge, or penalty added to a regular mortgage payment when the payment is made late by an amount of time specified in the original loan document.

LENDER

The bank, mortgage broker or financial institution providing the loan funds to a borrower.

LIABILITIES

A person’s outstanding debt obligations.

LIEN

Any claim against a piece of property resulting from a debt or other obligation.

LIFE CAP

A limit on how far the interest rate can move for an Adjustable Rate Mortgage.

LOAN

Money borrowed, to be repaid with interest, according to the specific terms and conditions of the loan.

LOAN OFFICER

A person that “sells” loans, representing the lender to the borrower, and the borrower to the lender.

LOAN ORIGINATION

How a lender refers to the process of writing new loans.

LOAN SERVICING

The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.

LOAN-TO-VALUE RATIO – LTV

The comparison of the amount owed on a mortgaged property to its fair market value.

LOCK-IN

An agreement between a lender and a borrower, guaranteeing an interest rate for a loan if the loan is closed within a certain amount of time.

LOCK-IN PERIOD

The amount of time the lender has guaranteed an interest rate to a borrower.

MARGIN

The set percentage that the lender adds to the index rate to determine the interest rate of an ARM.

MATURITY

The date on which the principal balance of a financial instrument becomes due and payable.

MERGED CREDIT REPORT

A credit report derived from data obtained from multiple credit agencies.

MORTGAGE

A financial arrangement wherein an individual borrows money to purchase real property and secures the loan with the property as collateral.

MORTGAGE BANKER

A financial institution that provides primary and secondary mortgages to home buyers.

MORTGAGE BROKER

A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each buyer.

MORTGAGE COMMITMENT

The written notice from the bank or other lender saying that it will advance you the mortgage funds in a specified amount to enable you to buy the home.

MORTGAGEE

The entity that lends money in a real estate transaction.

MORTGAGE INSURANCE

A policy that fulfills those obligations of a mortgage when the policy holder defaults or is no longer able to make payments.

MORTGAGE INSURANCE PREMIUM – MIP

A fee that is often included in mortgage payments that pays for mortgage insurance coverage.

MORTGAGE LIFE INSURANCE

A policy that fulfills the obligations of a mortgage when the policy holder dies.

MORTGAGOR

The entity that borrows money in a real estate transaction.

NO-COST LOAN

Many lenders offer loans that you can obtain at “no cost.” You should inquire whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

NON-LIQUID ASSETS

Any assets that cannot easily be converted into cash (e.g., property).

NO-POINT LOAN

A loan with no “points”. The interest rate on such a loan will be higher than a loan with points paid. Also sometimes refers to a refinance loan where closing costs are included in the loan.

NOTE

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

NOTE RATE

The interest rate stated on a mortgage note.

NOTICE OF DEFAULT

Formal written notice from a lender to a borrower that default has occurred.

OFFER TO PURCHASE REAL ESTATE

A promise by a buyer to enter into an agreement to purchase real estate, provided certain terms and conditions are met by the property’s seller.

ORIGINATION FEE

Refers to the total number of points paid by a borrower at closing.

OWNER OCCUPIED

The state of property wherein the owner occupies at least some portion of the property.

PITI

(P)rincipal, (I)nterest, (T)axes and (I)nsurance; a reference to the total monthly payment required to repay a mortgage in accordance with its term, as well as monthly escrow payments for taxes and insurance.

POINT

A percentage of a mortgage amount (one point = 1 percent).

PRE-APPROVAL

The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre-approval allows the borrower greater freedom in negotiations with sellers.

PREPAID EXPENSES

The initial deposit at the time of closing for taxes, hazard insurance, and the subsequent monthly deposits made to the lender for that purpose. Expenses may also include an interest amount.

PREPAYMENT

Payment made that reduces the principal balance of a loan before the due date and before the loan has become fully amortized.

PRE-QUALIFICATION

Less formal than pre-approval, pre-qualification usually means a written statement from a loan officer indicating his or her opinion that the borrower will be able to become approved for a mortgage loan.

PRIME RATE

The interest rate that banks and other lending institutions charge other banks or preferred customers.

PRINCIPAL

The amount owed on a mortgage which does not include interest or other fees.

PRINCIPAL BALANCE

The outstanding balance of principal on a mortgage. Does not included interest due.

PRIVATE MORTGAGE INSURANCE – PMI

A form of mortgage insurance provided by private, non-government entities. Normally required when the down payment is less that 20%.

PURCHASE AND SALE AGREEMENT

The Purchase and Sale Agreement (P&S) is a written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

PROPERTY TAXES

Taxes based on the assessed value of the home, paid by the homeowner for community services such as schools, public works and other costs of local government. Property taxes are sometimes paid as part of the monthly mortgage payment.

QUALIFYING RATIOS

Guidelines applied by lenders to determine how large a loan may be granted to a home buyer.

QUITCLAIM DEED

A legal document which transfers any ownership an individual has in a piece of property. Often used when the amount of ownership is not known or is unclear.

RADON

A naturally appearing radioactive gas, found in some buildings, that in sufficient concentrations may cause health problems.

RATE LOCK

A guarantee from a lender of a specific interest rate for a period of time.

REAL ESTATE

A piece of land and any improvements or fixtures located on that land.

REAL ESTATE AGENT

A licensed professional who facilitates the buying and selling of real estate.

REAL ESTATE SETTLEMENT PROCEDURES ACT – RESPA

A federal law requiring lenders to give full disclosure of closing costs to borrowers.

RECORDING FEES

A fee charged by the local government to record mortgage documents into the public record so that any interested party is aware that a lender has an interest in the property.

REFINANCE TRANSACTION

A new loan to pay off an existing loan. Typically to gain a lower interest rate or convert equity into cash.

REMAINING BALANCE

The amount of principal, interest and other costs that has not yet been repaid.

REMAINING TERM

The amount of time remaining on the original amortization schedule.

REPAYMENT PLAN

A plan to repay delinquent payments, agreed upon between a lender and borrower, in an effort to avoid foreclosure.

SALE PRICE

The actual price a property sells for, exclusive of any special financing concessions.

SECOND MORTGAGE

A loan secured by the equity in a home, when a primary mortgage already exists.

SECURED LOAN

A loan that is backed by collateral. In the case of a mortgage loan, the collateral is the house.

SECURITY

The property used as collateral for a loan.

SELLER’S MARKET

An economic situation that favors the seller because the demand for property exceeds the supply.

SURVEY

A specific map of a piece of property which includes the legal boundaries and any improvements or features of the land. Surveys also depict any rights-of-way, encroachments or easements.


TENANCY BY ENTIRETY

A type of joint ownership of property available only to a husband and wife.

TENANCY IN COMMON

A type of joint ownership in a property without the right of survivorship.

TITLE

A specific document which serves as proof of ownership.

TITLE INSURANCE

A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise.

TITLE SEARCH

The process whereby the title company researches a properties title history and ensures that no outstanding claims exist.

TOTAL DEBT RATIO

A standard calculation performed by mortgage lenders to determine if a borrower qualifies for a specific loan type. Total debt ratio is calculated by dividing the monthly housing expense (PITI plus all other monthly debt obligation) by the borrower’s monthly gross income. This is also referred to as a “back-end ratio” or “bottom ratio.”

TRUTH-IN-LENDING

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

VA MORTGAGE

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).