Financing Glossary

Acceleration Clause

A loan provision allowing the lender to demand full repayment immediately if the borrower defaults.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that periodically changes based on a financial index.

Amortization

The gradual repayment of a loan through regular payments that cover both principal and interest.

Balloon Payment

A large, lump-sum final payment due at the end of a loan term that is not fully amortized.

Blanket Mortgage

A single mortgage that covers more than one parcel of real property, often used by developers.

Conventional Loan

A mortgage not insured or guaranteed by a government agency, typically requiring stronger credit and larger down payments.

Deed in Lieu of Foreclosure

An arrangement where a defaulting borrower voluntarily deeds the property to the lender to avoid foreclosure.

Deed of Trust

A three-party security instrument where a trustee holds title on behalf of the lender until the loan is repaid.

Discount Points

Prepaid interest, each point equal to 1% of the loan amount, paid to reduce the interest rate.

Due-on-Sale Clause

A loan provision requiring the full balance to be paid when the property is sold or transferred.

Equal Credit Opportunity Act (ECOA)

A federal law prohibiting lenders from discriminating against credit applicants based on protected characteristics.

Equitable Right of Redemption

A borrower's right to reclaim property by paying the full debt before a foreclosure sale is completed.

Fannie Mae

A government-sponsored enterprise that purchases mortgages from lenders, providing liquidity to the secondary mortgage market.

FHA Loan

A mortgage insured by the Federal Housing Administration, typically requiring a lower down payment than conventional loans.

Freddie Mac

A government-sponsored enterprise that purchases mortgages from lenders, supporting the secondary mortgage market.

Ginnie Mae

A government agency that guarantees mortgage-backed securities composed of federally insured loans like FHA and VA loans.

Home Equity Line of Credit (HELOC)

A revolving credit line secured by the equity in a borrower's home.

Impound (Escrow) Account

A lender-held account collecting funds monthly for property taxes and insurance, paid on the borrower's behalf.

Judicial Foreclosure

A foreclosure process carried out through the court system, ending in a court-ordered sale.

Land Contract (Contract for Deed)

A seller-financing arrangement where the buyer takes possession but the seller retains legal title until paid in full.

Lien Theory State

A state where a mortgage creates only a lien on the property, and the borrower retains legal title.

Loan Assumption

A transaction where a buyer takes over the seller's existing mortgage, becoming responsible for its terms.

Mortgage

A legal document that pledges real property as security for a loan, giving the lender a claim if the borrower defaults.

Novation

The substitution of a new party or obligation for an old one, releasing the original party from liability.

Package Mortgage

A mortgage that includes both real property and personal property, such as appliances, as collateral.

Power of Sale (Non-Judicial) Foreclosure

A foreclosure process authorized by the loan documents that bypasses the courts, common with deeds of trust.

Preapproval

A lender's conditional commitment to lend a specific amount based on a review of a borrower's financial documentation.

Prepayment Penalty

A fee some lenders charge a borrower for paying off a loan before its scheduled maturity.

Private Mortgage Insurance (PMI)

Insurance required on conventional loans with less than 20% down, protecting the lender against borrower default.

Promissory Note

A borrower's written, signed promise to repay a debt, serving as evidence of the loan obligation.

Purchase Money Mortgage

A mortgage used to finance the purchase of the property it secures, often provided by the seller.

Rate Lock

A lender's commitment to hold a specific interest rate for a borrower for a set period during the loan process.

Reverse Mortgage

A loan allowing homeowners, typically seniors, to convert home equity into cash without monthly payments, repaid when the home is sold.

Seller Financing

An arrangement where the seller acts as the lender, allowing the buyer to make payments directly to them.

Statutory Redemption

A borrower's right in some states to reclaim foreclosed property within a set period after the sale.

Subordination

An agreement in which a lienholder agrees their claim will rank behind another lien in priority.

Title Theory State

A state where a mortgage transfers legal title to the lender until the loan is repaid.

Truth in Lending Act (Regulation Z)

A federal law requiring lenders to disclose the true cost of credit, including the APR, to borrowers.

Underwriting

The lender's process of evaluating a borrower's creditworthiness and the property's value to approve a loan.

Usury

The practice of charging an interest rate on a loan that exceeds the legally permitted maximum.

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, often requiring no down payment.

Wraparound Mortgage

A new loan that wraps around an existing mortgage, with the borrower making one payment that covers both.

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