Glossary of Mortgage Terms H - N
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage
unique is that instead of making payments to a lender, the lender makes payments to you.
It enables older home owners to convert the equity they have in their homes into cash,
usually in the form of monthly payments. Unlike traditional home equity loans, a borrower
does not qualify on the basis of income but on the value of his or her home. In addition,
the loan does not have to be repaid until the borrower no longer occupies the property.
equity line of credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash
drawn against the equity of his home, up to a predetermined amount.
A document that provides an itemized listing of the funds that were paid at closing.
Items that appear on the statement include real estate commissions, loan fees, points, and
initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on
the sheet. The totals at the bottom of the HUD-1 statement define the seller's net
proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is
printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is
also known as the "closing statement" or "settlement sheet."
A form of ownership or taking title to property which means each party owns the whole
property and that ownership is not separate. In the event of the death of one party, the
survivor owns the property in its entirety.
A decision made by a court of law. In judgments that require the repayment of a debt,
the court may place a lien against the debtor's real property as collateral for the
A type of foreclosure proceeding used in some states that is handled as a civil
lawsuit and conducted entirely under the auspices of a court. Other states use
A loan that exceeds Fannie Maes and Freddie Macs loan limits, currently at
$227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred
to as conforming loans.
The penalty a borrower must pay when a payment is made a stated number of days. On a
first trust deed or mortgage, this is usually fifteen days.
A property description, recognized by law, that is sufficient to locate and identify
the property without oral testimony.
A term which can refer to the institution making the loan or to the individual
representing the firm. For example, loan officers are often referred to as
A legal claim against a property that must be paid off when the property is sold. A
mortgage or first trust deed is considered a lien.
For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate
can increase or decrease over the life of the mortgage.
line of credit
An agreement by a commercial bank or other financial institution to extend credit up
to a certain amount for a certain time to a specified borrower.
A sum of borrowed money (principal) that is generally repaid with interest.
Also referred to by a variety of other terms, such as lender, loan representative,
loan "rep," account executive, and others. The loan officer serves several
functions and has various responsibilities: they solicit loans, they are the
representative of the lending institution, and they represent the borrower to the lending
How a lender refers to the process of obtaining new loans.
After you obtain a loan, the company you make the payments to is "servicing"
your loan. They process payments, send statements, manage the escrow/impound account,
provide collection efforts on delinquent loans, ensure that insurance and property taxes
are made on the property, handle pay-offs and assumptions, and provide a variety of other
The percentage relationship between the amount of the loan and the appraised value or
sales price (whichever is lower).
The difference between the interest rate and the index on an adjustable rate mortgage.
The margin remains stable over the life of the loan. It is the index which moves up and
The date on which the principal balance of a loan, bond, or other financial instrument
becomes due and payable.
merged credit report
A credit report which reports the raw data pulled from two or more of the major credit
repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard
factual credit report.
Occasionally, a lender will agree to modify the terms of your mortgage without
requiring you t refinance. If any changes are made, it is called a modification.
A legal document that pledges a property to the lender as security for payment of a
debt. Instead of mortgages, some states use First Trust Deeds.[
For a more complete discussion of mortgage banker, see "Types of Lenders." A
mortgage banker is generally assumed to originate and fund their own loans, which are then
sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However,
firms rather loosely apply this term to themselves, whether they are true mortgage bankers
or simply mortgage brokers or correspondents.
A mortgage company that originates loans, then places those loans with a variety of
other lending institutions with whom they usually have pre-established relationships.
The lender in a mortgage agreement.
Insurance that covers the lender against some of the losses incurred as a result of a
default on a home loan. Often mistakenly referred to as PMI, which is actually the name of
one of the larger mortgage insurers. Mortgage insurance is usually required in one form or
another on all loans that have a loan-to-value higher than eighty percent. Mortgages above
80% LTV that call themselves "No MI" are usually a made at a higher interest
rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a
higher interest rate to the lender, which then pays the mortgage insurance themselves.
Also, FHA loans and certain first-time homebuyer programs require mortgage insurance
regardless of the loan-to-value.
insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency
such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI)
The borrower in a mortgage agreement.
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a
required minimum payment. If a borrower makes the minimum payment it may not cover all of
the interest that would normally be due at the current interest rate. In essence, the
borrower is deferring the interest payment, which is why this is called "deferred
interest." The deferred interest is added to the balance of the loan and the loan
balance grows larger instead of smaller, which is called negative amortization.
A refinance transaction which is not intended to put cash in the hand of the borrower.
Instead, the new balance is caculated to cover the balance due on the current loan and any
costs associated with obtaining the new mortgage. Often referred to as a "rate and
Many lenders offer loans that you can obtain at "no cost." You should
inquire whether this means there are no "lender" costs associated with the loan,
or if it also covers the other costs you would normally have in a purchase or refinance
transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording
fees, notary fees, and others. These are fees and costs which may be associated with
buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind
that, like a "no-point" loan, the interest rate will be higher than if you
obtain a loan that has costs associated with it.
A legal document that obligates a borrower to repay a mortgage loan at a stated
interest rate during a specified period of time.
The interest rate stated on a mortgage note.
Almost all lenders offer loans at "no points." You will find the interest
rate on a "no points" loan is approximately a quarter percent higher than on a
loan where you pay one point.
notice of default
A formal written notice to a borrower that a default has occurred and that legal
action may be taken.