REALTOR® Serving the San Francisco Bay Area Communities

Terms You Want to Know A - D

  • Acceleration Clause: A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

  • Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

  • Adjustment Date: The date the interest rate changes on an adjustable-rate mortgage.

  • Adjustment Period: The length of time between interest rate changes on an ARM.

  • Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.Over time, the interest portion decreases as the loan balance decreases and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

  • Amortization Schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

  • Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage.

  • Appraisal: A written justification of the price paid for a property primarily based on an analysis of comparable sales of similar homes nearby.

  • Appraiser: An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

  • Appreciation: The increase in the value of a property due to changes in market conditions, inflation, or other causes.

  • Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.

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

  • Assumption of Mortgage: A buyer's agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

  • Balloon Mortgage: A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

  • Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-term loans.

  • Bill of Sale: A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

  • Biweekly Mortgage: A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.

  • Buydown: Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

  • Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

  • CC&R's: Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.

  • Chain of Title: An analysis of the transfers of title to a piece of property over the years.

  • Clear Title: A title that is free of liens or legal questions as to ownership of the property.

  • Closing Costs: Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance.

  • Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

  • Cloud on Title: Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

  • Collateral: In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

  • Condominium: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

  • Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement is contingent upon the buyer obtaining financing.

  • Conventional Mortgage: Refers to home loans other than government loans (VA and FHA).

  • Conversion Clause: A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra.

  • Cost of Funds Index (COFI): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

  • Deed-in-Lieu: Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

  • Deed of Trust: Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.This is the legal document conveying title to a property.

  • Default: Failure to make the mortgage payment within a specific period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

  • Due-On-Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.
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