Glossary of Mortgage Loan Terms         A - D | E - L | M - P | Q - Z

Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Adjustable Rate Mortgage (ARM)
A mortgage whose interest rate changes over time based on an index and a margin. Rate changes are made at prescribed times and within prescribed limits (caps) as defined in the mortgage contract.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Amortization
The gradual repayment of a mortgage by installments.

Annual Percentage Rate (A.P.R.)
The interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated rate on the mortgage because it takes into account points and other credit costs.

Appraisal
An opinion of the market value of a property, made by a qualified "appraiser".

Appreciation
An increase in value due to changes in market conditions or other causes.

Assumption
The transfer of the seller's existing mortgage to the buyer.

Balloon Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Buy-Down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Cap
A provision of an ARM limiting the interest rate or mortgage payment's increase.

Cash Reserve
Sufficient cash remaining after closing to make the first two mortgage payments.

Closing
The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called "settlement."

Commitment
A promise by a lender to make a loan on specific terms to a borrower.

Construction Loan
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Contingency
A condition that must be met before a contract is legally binding.

Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed
The legal document conveying title to a property.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Deposit Cash
Paid to the seller when a formal sales contract is signed.

Depreciation
A decline in the value of a property; the opposite of "appreciation."

Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.