Glossary of Terms from A to C

• A.P.R.

  See: Annual Percentage Rate (A.P.R.)

• Abstract of title

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

• Acceleration clause

  A clause that allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

• Adjustable Rate Mortgage (ARM)

  A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap.

  See also: Cap

• Amenities

  Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation.

• Amortization

  The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

• Annual cap

  See: Cap

• Annual Percentage Rate (A.P.R.)

  The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

• Appraisal

  An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's income-producing ability.

• Appreciation

  A property's increase in value due to inflation or economic factors

• ARM

  See: Adjustable Rate Mortgage (ARM)

• Assessment

  Charges levied against a property for tax purposes or to pay for municipal or association improvements such as curbs, sewers, or grounds maintenance.

• Assignment

  The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person.

• Assumption

  An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all.

• Balloon Mortgage

  Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.

• Biweekly Mortgage

  A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

• Bond

  A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market.

• Bridge Loan

  A loan to “bridge” the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.

• Buy-Down

  A type of mortgage which requires the buyer to pay additional discount points or make a substantial down payment in return for a below market interest rate. Another form of a buy-down is one in which the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates buy-downs may induce buyers to purchase property they might otherwise not have purchased.

• Cap

  A limit in how much an adjustable rate mortgage monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve-month period.

• Certificate of Title

  A document rendering an opinion on the status of a property's title based on public records.

• Closed-end Mortgage

  A mortgage principal amount that is fixed and cannot be increased during the life of the loan.

  See also: Open-end Mortgage

• Closing Costs

  Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:

• Cloud

  A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.

• Co-mortgagor

  One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers.

  See also: Co-signer

• Co-signer

  A person who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property.

  See also: Co-mortgagor

• Collateral

  Something of value pledged as security for a loan. In mortgage lending the property itself serves as collateral for a mortgage loan.

• Commitment Fee

  A fee charged when a) an agreement is reached between a lender and a borrower for a loan at a specific rate and points and b) the lender guarantees to lock in that rate.

• Condominium

  An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as grounds, parking facilities and tennis courts.

• Conforming Loan

  A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

  See also: Non-Conforming Loan

• Construction Loan

  A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction the borrower must obtain permanent financing or repay the construction loan in full.

• Consumer handbook on adjustable rate mortgages (C.H.A.R.M.)

  A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

• Conventional Loan

  A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

• Convertible Mortgage

  An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

• Covenants

  Rules and restrictions governing the use of property.

• Curtailments

  The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.