Mortgage Industry Glossary

A

  • Acceleration Clause

    A mortgage provision allowing the lender to demand full repayment of the loan if the borrower defaults on specific terms.

  • Adjustable-Rate Mortgage (ARM)

    A mortgage with an interest rate that changes periodically based on an index, affecting monthly payments over time.

  • Amortization

    The process of spreading out loan payments over time, combining interest and principal until the debt is fully repaid.

  • Annual Percentage Rate (APR)

    The yearly cost of borrowing, including interest and lender fees, expressed as a percentage for loan comparison.

  • Appraisal

    A professional evaluation of a property’s market value used by lenders to confirm loan-to-value ratios.

  • Application Package

    A complete set of borrower documents required to process and underwrite a mortgage loan.

  • Appraiser Independence Requirements (AIR)

    Regulations ensuring appraisers operate without influence or pressure from interested parties.

  • Automated Underwriting System (AUS)

    A software-driven tool used by lenders to assess loan eligibility and risk automatically.

  • Asset Verification

    The process of validating a borrower’s liquid assets to confirm ability to cover down payments and closing costs.

B

  • Back-End Ratio

    The borrower’s total monthly debt obligations divided by gross income; used to assess affordability.

  • Balloon Payment

    A large, lump-sum payment due at the end of a mortgage term after smaller regular payments.

  • Base Rate

    The minimum interest rate set by lenders, often tied to benchmark indexes like LIBOR or SOFR.

  • Benchmark Rate

    A reference interest rate used to set adjustable-rate mortgage pricing.

  • Borrower

    The individual or entity legally responsible for repaying the mortgage loan.

  • Bridge Loan

    A short-term loan used until permanent financing or the next stage of funding is secured.

  • Broker Price Opinion (BPO)

    A property value estimate prepared by a licensed real estate broker, often used for loan servicing and QC.

  • Buydown

    A financing arrangement where upfront payments reduce the loan’s interest rate for a specific period.

C

  • Cap Rate

    The maximum interest rate change allowed on an ARM during adjustment periods.

  • Cash-Out Refinance

    Refinancing that replaces an existing mortgage with a new, larger loan—allowing the borrower to withdraw equity.

  • Closing Disclosure (CD)

    A standardized document summarizing all final loan terms, fees, and payments before closing.

  • Collateral

    The property pledged as security for the mortgage loan.

  • Compliance Review

    An audit ensuring loan files meet federal and investor regulatory standards.

  • Conditional Approval

    Lender agreement to approve a loan contingent upon additional required documents or verifications.

  • Conforming Loan

    A mortgage that meets Fannie Mae and Freddie Mac underwriting limits and guidelines.

  • Consolidation Loan

    Combining multiple debts into one mortgage with a single monthly payment.

  • Construction-to-Permanent Loan

    Financing that funds both home construction and the permanent mortgage in one transaction.

  • Credit Risk Assessment

    Evaluating borrower creditworthiness through scores, payment history, and financial stability.

D

  • Debt-to-Income Ratio (DTI)

    The percentage of a borrower’s income that goes toward debt payments; key for underwriting decisions.

  • Default

    Failure to make mortgage payments as agreed, potentially leading to foreclosure.

  • Delinquency

    A mortgage payment overdue beyond its due date.

  • Discount Points

    Fees paid at closing to reduce the mortgage’s interest rate over its life.

  • Down Payment

    The upfront amount a borrower contributes toward the property purchase price.

  • Due Diligence

    Comprehensive review of loan documentation to confirm compliance and accuracy before purchase or sale.

E

  • Earnest Money Deposit

    A buyer’s deposit demonstrating good faith in a property purchase offer.

  • Encumbrance

    A claim, lien, or legal liability attached to a property title.

  • Escrow Account

    A fund held by a lender to pay property taxes and insurance premiums on the borrower’s behalf.

  • Equity

    The difference between a property’s market value and the mortgage balance owed.

  • Evaluation Report

    An internal lender review of property value and risk metrics, often used for non-appraisal transactions.

  • Exit Strategy

    The planned method for repaying or transitioning from a short-term or bridge loan.

F

  • Fair Market Value (FMV)

    The price a property would sell for under normal market conditions between informed parties.

  • Fannie Mae (FNMA)

    A government-sponsored enterprise that buys and securitizes conforming mortgage loans.

  • FHA Loan

    A government-insured mortgage designed for borrowers with lower credit or smaller down payments.

  • Final Underwriting

    The last review step confirming borrower eligibility and property compliance before closing.

  • Fixed-Rate Mortgage (FRM)

    A mortgage with an interest rate that remains constant throughout the loan term.

  • Flood Certification

    Verification of whether a property lies in a designated flood zone, impacting insurance requirements.

  • Foreclosure

    Legal process through which a lender takes ownership of a property due to loan default.

  • Funding Authorization

    Lender’s approval for disbursing loan proceeds after closing conditions are met.

G

  • Ginnie Mae (GNMA)

    A federal corporation guaranteeing mortgage-backed securities for government-insured loans (FHA, VA, USDA).

  • Good Faith Estimate (GFE)

    A disclosure outlining estimated loan costs (now replaced by the Loan Estimate under TRID).

  • Gross Income

    The borrower’s total income before taxes and deductions used in DTI calculations.

  • Guarantee Fee (G-Fee)

    A charge collected by Fannie Mae or Freddie Mac for guaranteeing timely payment on mortgage-backed securities.

H

  • Hazard Insurance

    Property insurance covering losses due to fire, storm, or other damage.

  • Home Equity Line of Credit (HELOC)

    A revolving credit line secured by the borrower’s home equity.

  • HUD-1 Settlement Statement

    A detailed list of all transaction costs used before the TRID disclosure rule.

  • Hybrid ARM

    A loan with a fixed rate for an initial term, then variable thereafter.

I

  • Impound Account

    Another term for escrow account, where taxes and insurance payments are held by the lender.

  • Index

    A benchmark interest rate that determines adjustments on an ARM.

  • Interest Rate Lock

    Agreement securing a specific mortgage rate for a set time before closing.

  • Investor Reporting

    The process of sending loan performance data to mortgage investors and servicers.

  • Initial Escrow Disclosure

    A statement detailing projected escrow deposits and disbursements for the coming year.

J

  • Joint Tenancy

    A form of property ownership where two or more parties share equal rights, with survivorship.

  • Judicial Foreclosure

    A court-supervised process for a lender to recover a defaulted loan through property sale.

K

  • Kick-Out Clause

    A purchase agreement term allowing a seller to accept a better offer under certain conditions.

  • Knowledge-Based Authentication (KBA)

    Security method used in digital mortgage applications to verify borrower identity.

L

  • Lender Paid Mortgage Insurance (LPMI)

    Mortgage insurance paid by the lender, usually resulting in a higher interest rate.

  • Loan Estimate (LE)

    A standardized form detailing key loan terms and costs, required under TRID.

  • Loan Modification

    A change to loan terms (rate, term, or structure) to help a borrower avoid default.

  • Loan Origination System (LOS)

    Software used by lenders to manage and automate the loan origination process.

  • Loan Servicing

    The administration of mortgage payments, escrow management, and investor reporting.

  • Loan-to-Value Ratio (LTV)

    Ratio comparing loan amount to property value; used to assess risk.

  • Loss Mitigation

    Lender strategies to minimize losses from borrower default, such as modifications or short sales.

M

  • Maturity Date

    The date when the final payment of a mortgage loan is due.

  • Mortgage-Backed Securities (MBS)

    Investment products backed by pools of mortgage loans.

  • Mortgage Insurance Premium (MIP)

    Fee charged on FHA loans to protect lenders from borrower default.

  • Mortgage Note

    Legal document outlining loan terms, interest rate, and repayment obligations.

  • Mortgage Servicer

    Entity responsible for collecting payments and managing escrow accounts.

  • Municipal Lien Search

    Check for unpaid municipal debts that could affect property title.

N

  • Negative Amortization

    Occurs when payments are less than the interest due, increasing the loan balance over time.

  • Non-Conforming Loan

    A mortgage that exceeds GSE loan limits or fails to meet agency guidelines.

  • Non-Owner Occupied Propert

    Real estate purchased for investment or rental, not primary residence.

  • Note Rate

    The interest rate stated on the mortgage note, used to calculate monthly payments.

  • Notification of Servicing Transfer

    Borrower notice that loan servicing rights have been sold or transferred.

O

  • Origination Fee

    A lender charge for processing and funding a new mortgage loan.

  • Owner’s Title Policy

    Insurance protecting the buyer against title disputes or liens.

P

  • Payment Shock

    Significant increase in a borrower’s monthly mortgage payment due to rate or term changes.

  • Payoff Statement

    A document showing the exact amount needed to pay off a mortgage in full.

  • Pipeline Management

    Tracking and managing loans in process from application to closing.

  • Post-Closing Audit

    A review of loan files after funding to ensure data integrity and compliance.

  • Pre-Approval

    Conditional lender commitment based on preliminary credit and income review.

  • Prepayment Penalty

    Fee charged if a borrower pays off the loan before a specified date.

  • Principal Balance

    The remaining amount owed on a loan, excluding interest.

  • Private Mortgage Insurance (PMI)

    Insurance required when down payment is less than 20% to protect the lender.

  • Purchase Money Mortgage

    Financing provided by the seller or third party to facilitate property purchase.

Q

  • Quality Control (QC)

    Post-closing review ensuring accuracy and compliance in loan files.

  • Qualified Mortgage (QM)

    Loan meeting CFPB standards designed to ensure borrower ability to repay.

  • Quick Ratio

    Liquidity measure used in commercial mortgage analysis to assess borrower solvency.

R

  • Rate Lock Agreement

    Contract guaranteeing a set interest rate for a defined time.

  • Recasting

    Adjusting a loan’s payment schedule based on a lump-sum principal payment.

  • Refinancing

    Replacing an existing mortgage with a new loan, often for better terms or equity withdrawal.

  • Repurchase Demand

    Lender request for seller to buy back a loan due to defects or noncompliance.

  • Reserves

    Funds required to be held by the borrower after closing to cover several months of payments.

  • Risk-Based Pricing

    Interest rate and fee determination based on borrower credit risk.

S

  • Secondary Market

    Marketplace where lenders sell closed loans to investors for liquidity.

  • Servicing Transfer

    Movement of loan servicing rights between entities.

  • Short Sale

    Sale of a property for less than the outstanding loan balance with lender approval.

  • Subordination Agreement

    Legal document giving one debt priority over another in foreclosure.

  • Survey

    Professional measurement defining property boundaries and structures.

T

  • Tangible Net Benefit

    Standard proving a refinance provides actual financial benefit to the borrower.

  • Tax Service Fee

    Charge for monitoring property tax payments on behalf of the lender.

  • Title Commitment

    Preliminary report showing ownership status and encumbrances before issuing title insurance.

  • Title Search

    Examination of public records to confirm legal ownership and identify liens.

  • TRID Rule

    CFPB regulation integrating TILA and RESPA disclosures into Loan Estimate and Closing Disclosure forms.

  • Truth in Lending Act (TILA)

    Federal law requiring disclosure of credit terms and loan costs to consumers.

U

  • Underwriting

    The evaluation process determining borrower eligibility and loan risk.

  • Uniform Closing Dataset (UCD)

    Standardized electronic format for delivering closing data to GSEs.

  • Uniform Residential Loan Application (URLA)

    Standard mortgage application form (Form 1003) used by lenders.

V

  • VA Loan

    Mortgage guaranteed by the Department of Veterans Affairs for eligible veterans and service members.

  • Verification of Employment (VOE)

    Process confirming borrower’s job and income status.

  • Verification of Deposit (VOD)

    Documentation verifying borrower’s bank account balances and assets.

W

  • Warehouse Line of Credit

    Short-term funding source used by mortgage lenders to finance loan originations before sale.

  • Wholesale Lending

    Mortgage funding provided through third-party brokers instead of direct retail channels.

  • Wraparound Mortgage

    Secondary financing arrangement combining a new loan with an existing one under a single payment.

Y

  • Yield Spread Premium (YSP)

    Compensation paid to mortgage brokers by lenders for originating loans at higher rates.

  • Yield Maintenance

    A prepayment penalty ensuring investors receive expected yield if a loan is paid off early.

Z

  • Zero Coupon Mortgage

    Loan where interest accrues but isn’t paid until maturity, uncommon in consumer lending.

  • Zoning Compliance

    Verification that property use aligns with local zoning regulations and codes.