Mortgage Terminology

Abatement (tax)

A reduction in real property tax granted by a taxing authority as the result of an appeal. In some jurisdictions, tax abatements may also be granted as an inducement for development or to attract or retain job-providing industries.

Abstract of Title

A historical summary provided by a title insurance company of all records affecting the title to a property.

Acceleration Clause

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed or the property is transferred.

Acceptance

An offeree's consent to enter into a contract and be bound by the terms of the offer.

Access Rights

A right to ingress and egress from one's property; may be implied or expressed.

Accommodation Paper

A promissory note or other negotiable instrument signed by a third party (accommodation party) guaranteeing the repayment of a loan.

Accommodation Party (endorser)

A person who lends his name to guarantee a loan for another by signing a promissory note, bill, or other negotiable instrument; the endorser becomes the guarantor of the loan and is therefore responsible for its repayment.

Acre

A unit of measure for land, 43,560 square feet.

Act of God

An event which causes damage by nature such as a flood, earthquake, or winds; an occurrence which was not caused by man.

Action to Quiet Title

A court action to remove any interest or claim in or title to real property; to remove a cloud on title.

Additional Principal Payment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable-Rate Mortgage (ARM)

A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Adjusted Basis

The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjusted Gross Income

A person's total income, as reported on the IRS 1040 tax return form, after allowable contributions, deductions and expenses (alimony).

Adjusted Sales Price

IRS term for the sales price of a home minus the costs of the sale. Used to calculate capital gains.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval

On an a adjustable rate mortgage (ARM), the interval of time between changes in the interest rate or monthly payment, typically one, three or five years, depending on the index.

Adjustment Period

The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six-month ARM would have an adjustment every six months.

Adjustment Period Cap

The amount that the interest rate is allowed to increase or decrease at the time of adjustment of an adjustable rate mortgage. A one year adjustable would have an annual cap, since the adjustment period is every year.

Administrator

A person appointed by a probate court to administer the estate of a person who died intestate.

Advance

In real estate, a partial disbursement of funds under a note. Most often used in connection with construction lending.

Adverse Possession

The right by which someone occupying a piece of land acquires title against the real owner, if the occupant's possession has been actual, continuous, hostile, visible, and distinct for a statutory period.

Affidavits

A written statement made before an official, such as a notary public. An affidavit of occupancy states that you will use the property as a principal residence. Or, an affidavit may state that all of the improvements to the property required in the sales contract were completed before closing.

Affordability Analysis

A detailed analysis of your ability to afford the purchase of a home. An affordability analysis considers your income, liabilities, and available funds, the type of mortgage you plan to use, the area where you want to purchase a home, and the expected closing costs.

After-Acquired Property

The property a debtor acquires after the execution of a mortgage or other form of indebtedness that additionally secures the indebtedness. If the mortgage note contains a statement on after-acquired property it is said to have an "after-acquired" clause.

Agency

Federal or quasi-federal organization involved in mortgage lending, such as Freddie Mac or Ginnie Mae.

Agent

One who legally represents another, called a principal, from whom express or implied authority has been derived.

Agreement for Sale

A written document in which the purchaser agrees to buy certain real estate or personal property and the seller agrees to sell under stated conditions. Also called a sales contract, binder, or earnest money contract.

All-Cash Offer

A proposal to purchase property without any contingency to obtain a loan to finance any portion of the purchase price.

Alternative Documentation

Use of bank statements, W-2's, and pay stubs to document an applicant's income and assets instead of verification forms mailed by the lender.

Amenity

A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location, scenic views, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and recreational facilities.

American Land Title Association (ALTA)

A national association of title insurance companies, abstractors, and attorneys specializing in real property laws. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.

Amortization

The gradual repayment of a mortgage loan by installments.

Amortization Schedule

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization Term

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Amortize

To repay a mortgage with regular payments that cover both principal and interest.

Annual Cap

See: cap.

Annual Mortgagor Statement

A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

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).

Annuity

An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Application

A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. See also "Loan Application"

Application Fee

Fee charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, lock-in fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.

Apportionment

A pro-rated division and distribution of prepaid or accrued taxes, prepaid insurance premiums, prepaid rents, and other income and expenses. When a property is sold, apportionment is used to distribute or collect funds due from the buyer and seller for income and expenses.

Appraisal

A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with "Home Inspection."

Appraised Value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appraiser

A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation

An increase in the value of a property due to changes in market conditions or other causes. The opposite of "Depreciation."

Appurtenance

Anything belonging to or attached to land such as a barn, garage, or easement, that is part of the property and is therefore included in a sale or transfer.

Arm's Length Transaction

A transaction between a willing buyer and a willing seller with no undue influence imposed on either party and where there is no relationship between the parties except that of the specific transaction.

Assessed Value

The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment

The process of placing a value on a property for the strict purpose of taxation. May also refer to a levy against a property for a special purpose, such as a sewer assessment.

Assessment Rolls

The public record of taxable property.

Assessor

A public official who establishes the value of a property for taxation purposes.

Asset

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including 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.
See also "Assumable Mortgage"

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.

Attachment

The act of taking property by judicial order into the custody of the court as security for payment of a judgment in an impending suit.

Attorney-in-fact

One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

Automated Underwriting

A technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting.

Avulsion

An abrupt and extensive erosion of land by a force of water and its subsequent deposit onto the property of another owner.