Glossary of Terms




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


Amortization:  Repayment of a loan in equal installments of principal and interest, rather than interest only payments.


Annual Percentage Rate (APR):  The total finance charges (interest, loan fees, and points, expressed as a percentage of the loan amount.


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


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.


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


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 may be continent upon the buyer obtaining financing.


CRB:  Certified Residential Broker:  To be certified, a broker must be a member of the National Association of Realtors, have five years experience as a licensed broker and have completed five required Residential Division courses.


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



Earnest Money:  The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.


Escrow:  A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.


FHA Loan:  A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.


Federal National Mortgage Association (FNMA):  Popularly known as Fannie Mae.  A privately owned corporation created by Congress to support the secondary mortgage market.  It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.


Fee Simple:  An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance.  It is the greatest interest a person can have in real estate.


Graduated Payment Mortgage:  A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.


GRI:  Graduate Realtors Institute.  A professional designation granted to a member of the National Association of Realtors who has successfully completed three courses covering Law, Finance and Principles of Real Estate.


Index:  A measure in interest rate changes used to determine changes in an ARM’s interest rate over the term of the loan.


Joint Tenancy:  An equal undivided ownership of the property by two or more persons.  Upon the death of any owner, the survivors take the decedent’s interest in the property.


Lien:  A legal hold or claim on property as security for a debt or charge.


Loan Commitment:  A written promise to make a loan for a specified amount on specified terms.


Loan-to-Value Ratio:  The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.


Margin:  The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.


Negative Amortization:  Negative amortization occurs when monthly payments fail to cover the interest cost.  The interest that isn’t covered is added to the unpaid balance, which means that even after several payments you could owe more than you did at the beginning of the loan.  Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.


Origination:  A fee or charge for work involved in evaluating, preparing and submitting a proposed mortgage loan.  The fee is limited to 1 percent for FHA and VA loans.


PITI:  Principal, interest, taxes, and insurance.


Planned Unit Development (PUD):  A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas.  Uses may be residential, commercial or industrial.


Point:  An amount equal to 1 percent of the principal amount of the investment or note.  The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.


Prepayment Penalty:  A fee charged to a mortgagor who pays a loan before it is due.  Not allowed for FHA or VA loans.


Private Mortgage Insurance (PMI):  Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.


Purchase Agreement:  A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions.  Also called a sales contract, earnest money contract, or agreement for sale.


Realtor:  A real estate broker or associate active in a local real estate board affiliated the National Association of Realtors.


Regulation Z:  The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.


Tenancy in Common:  A type of joint ownership of property by two or more persons with no right of survivorship.


Title Insurance Policy:  A policy that protects the purchaser, mortgagee or other party against losses.


VA Loan:  A loan that is partially guaranteed by the Veterans Administration and made by a private lender.


Windermere Homes & Estates
830 W. Valley Parkway 330 • Escondido, CA 92025
Phone: (760)470-2519 • DRE LIC. #01345138

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