mortgage terminology

Use this glossary of mortgage terms to better understand the overall mortgage process as well as specific mortgage terms that may be unfamiliar to you.

3/1, 5/1 , 7/1 and 10/1 ARMs

Adjustable rate mortgages, in which, rate is fixed for three year, five year, seven year and 10‐year periods, respectively, but may adjust annually after that. Also called Hybrid ARMS

Form 1003

Designed by Fannie Mae and Freddie Mac it is used by lenders to obtain financial and personal information from borrowers who apply for a mortgage loan secured by a one to four unit residential real estate mortgage loan secured by a one to four unit residential real estate.

Form 1003 is also known as the Uniform Residential Loan Application (URLA).

Freddie Mac also uses the same application form and is known as the Freddie Mac Form 65 Freddie Mac Form 65.

1031 Exchange

A tax‐deferred exchange of “like” real estate, employed to offset or avoid capital gains tax.

4506‐T

Form 4506‐T is an Internal Revenue Service (IRS) document that is used to retrieve past tax returns, W‐2, and 1099 transcripts that are on file with the IRS.

The document gives permission for a third party to retrieve the tax payer’s data.

The taxpayer must sign and date the 4506‐T.

Abstract of title

A summary of recorded transactions, concerning A summary of recorded transactions, concerning a particular property.

Acceleration Clause

Condition in a mortgage that gives the lender the right to require immediate repayment of the loan balance if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Accrued Interest

Interest earned but not yet paid.

Acquisition Costs

Purchase price, plus closing costs, minus seller Purchase price, plus closing costs, minus seller credits.

Adjustable Rate Mortgage (ARM)

A mortgage, in which, the A mortgage, in which, the interest rate interest rate is adjusted periodically based on a pre‐selected index.

Also sometimes known as a renegotiable rate mortgage, variable rate mortgage or Canadian roll t over mortgage.

Adjusted Basis

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

Adjustment Date

The date that the interest rate changes on an adjustable rate mortgage (ARM) adjustable rate mortgage (ARM).

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.

Adjustment Period

The period elapsing between adjustment dates for an adjustable rate mortgage (ARM).

Affiliated business arrangement (ABA)

An ABA is an arrangement to share or refer business between two different companies involved in providing services in the closing of a real estate transaction.

If there is greater than one percent (1%) ownership interest of a party in both the business referring out the service and the business receiving the referral, it must be disclosed to the borrower.

Agent

One that acts for or represents another.

Agreement of Sale

Also known as a “Sales Contract.”

A written document, in which, a purchaser agrees to buy property, under certain given conditions, and the seller agrees to sell, under certain given conditions.

Alternative Documentation

A method of documenting a loan file, which relies on information the borrower is likely to be able to provide information the borrower is likely to be able to provide, instead of waiting on verifications sent to third parties for confirmation of statements made in the application. confirmation of statements made in the application.

Amortization

Loan payment, divided into equal periodic payments, calculated to pay off the calculated to pay off the debt at the end of a fixed period at the end of a fixed period, including accrued interest on the outstanding balance.

Amortization Term

The length of time required to amortize the mortgage loan expressed as a number of months. loan expressed as a number of months.

For example 360 months is the For example 360 months is the amortization term for a amortization term for a 30‐year fixed rate mortgage.

Annual Percentage Rate (APR)

The measurement of the full cost of a loan, including interest and loan fees expressed as a yearly percentage interest and loan fees, expressed as a yearly percentage rate.

9 Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of different loans.

Application

Often referred to as a 1003, an initial statement of personal and financial information required to approve your loan.

Application fee

A fee charged, by a lender, to cover initial costs of processing a loan application often including charges for processing a loan application, often including charges for property appraisal and a credit report.

Appraisal

An estimate of the value of property, made by a qualified professional called an qualified professional called an “appraiser appraiser.”

Based on an appraiser’s knowledge, experience, analysis of the property and comparable sales (comps) in the area.

Appraisal Fee

A fee charged, by a licensed certified appraiser, to render an opinion of market value as of a specific date.