Fifth Third Bank

Glossary of Mortgage Terms

Amortization: Payment of debt in regular, periodic installments of principal and interest, opposed to interest-only payments.

Application Fee: This is the fee charged by the lender to cover a portion of the costs of processing a loan application.

Appraisal: An opinion of real estate value based upon a factual analysis. Legally, an estimation of value by a disinterested person of suitable qualifications.

Assumption: The process of one buyer assuming another’s mortgage. In some loss mitigation situations, a qualified buyer may be allowed to assume a mortgage, even if the mortgage states that it is non-assumable.

Closing: Usually the last step in buying a home. Documents are signed, the balance of the loan costs is calculated, funds are disbursed and the transaction is completed.

Closing Costs: Expenses incidental to a purchase of real estate, such as loan fees, title fees, appraisal fees, etc.

Construction Permanent Financing: A mortgage that finances the construction of a home and converts to permanent, amortizing financing when the home is completed. It allows buyers to deal with only one lender, file only one credit application and pay only one set of closing costs.

Deed in Lieu: When a deed to real property is accepted by a lender from a borrower experiencing financial hardship in order to avoid the necessity of collection activity. If the property has been listed for a period of time with no activity, a lender may accept the deed to the property as full or partial settlement for the debt, to avoid foreclosure proceedings. A deed in lieu may not be an option for borrowers who can still make their mortgage payments.

Discount Points: Amount paid to the lender when the loan is originated to account for the difference between the current market-determined cost of interest and the actual lower interest rate of the loan. Points may be paid by either the buyer or seller. Each point is equal to one percent of the original loan amount.

Earnest Money: A deposit of money accompanying an offer to buy property to show good faith, generally credited to the buyer at closing.

Financial Index: A basis for making interest rate changes on an Adjustable Rate Mortgage. One example of a financial index could be the change in cost of U.S. Treasury Bonds.

Forbearance: The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure: The legal process where a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

HAMP: HAMP is the acronym for the Home Affordable Modification Program. A loan modification process through which borrowers who are in default, at risk of imminent default, or in foreclosure can have their loans modified to a more affordable monthly payment equal to a target 31 percent of their monthly gross income.

HARP: HARP is the acronym for the Home Affordable Refinance Program. A government program developed to help homeowner's who either did not have enough equity for a traditional refinance or who were having problems making payments on their current mortgages.

HASP: HASP is the acronym for the Home Affordability and Stability Plan. A government program providing assistance to homeowners making a good faith effort to stay current on their home mortgage payments, preserving their home as well as protecting their credit.

Initial Interest Rate: The interest rate charged for the initial period of an Adjustable Rate Mortgage (before the first interest rate adjustment).

Interest Rate Cap: Limits the amount an Adjustable Rate Mortgage may increase or decrease during specific intervals and over the term of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.

Loan-to-Value (LTV): the loan amount as a percentage of the purchase price or, in the case of a refinance, appraised value. For example, a 95% LTV is the same as putting 5% down, or having 5% equity.

Modification: A loan modification is a permanent change in one or more of the terms of a mortgagor’s loan. The lender may be able to modify the terms of the borrower’s original loan by reducing the interest rate, extending the term of the loan, deferring past due interest or adding the delinquent interest amount to the principal balance to make the payments more affordable.

Mortgage Pre-Approval Service: A service offered by many lenders that allows you to qualify for financing before finding a house to buy.

Origination Fee: A fee charged by the lender for making a real estate loan—usually a percentage of the amount loaned, such as one percent. Not to be confused with an application fee.

Partial Claim / Claim Advance: If the borrower’s mortgage is insured, they may qualify for an interest-free loan from their mortgage guarantor in order to make their account current.

PITI: The total amount of your monthly home loan payment including principal, interest, taxes and insurance(s).

Private Mortgage Insurance (PMI): Insures repayment of the loan balance to the lender in the event of default by the borrower. The insurance is similar to insurance issued by a government agency (such as FHA) except it is issued by a private company. Usually required for homes financed with less than a 20 percent down payment.

Refinance: Replacing an existing loan with a new one to get a lower rate, switch from one loan type to another or convert equity to cash. A refinance loan will involve various loan fees, just as with any other mortgage.

Repayment Plan: An agreement between the borrower and lender where the borrower resumes regular monthly payments, in addition to paying a portion of the past due payments.

Short-Sale: An approved sale of a property for less than full payoff of the loan, usually to avoid foreclosure. This method is generally used when a borrower can no longer afford to maintain the payments due to financial hardship, and has not been successful in selling the property for the full indebtedness. Typically, the borrower is still obligated to pay the remaining deficiency balance of the loan.

Term: The number of years before a loan is paid in full; 15-, 20-, 25- and 30-year terms are the most common for home mortgages.

Title: The evidence of ownership of a property.

Title Insurance: An insurance policy that insures the quality of the title and insures the lien priority of the mortgage.

Title Search: A review of all recorded documents affecting a specific piece of property to determine the present condition of the title.

Underwriting: The process by which credit and economic factors are used to determine whether a borrower qualifies for a loan.

Warranty Deed: A legal document used to convey title.

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