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M

Margin
The number of percentage points the lender adds to the index rate (such as the prime rate or a U.S. Treasury bill) to determine the annual percentage rate.

Mortgage
A lien or claim that gives the lender the right to take possession of the home if the borrower fails to repay the loan. Typically, mortgages run 10 to 30 years.

Mortgagee
The lender.

Mortgagor or Mortgager
The borrower

Mortgage broker
An individual or firm in the business of finding mortgage loans for homebuyers or refinancers. Brokers receive compensation directly from borrowers, often a percentage of the total loan amount plus other fees, and do not have a legal obligation to find the best loan available. Brokers also may be payed by the lender based on the profitability of the mortgage loan. Mortgage brokers (as of December 2006) now originate the majority (by some estimates, two-thirds) of subprime mortgage loans.

Mortgage Insurance (MI)
See Private Mortgage Insurance.

Mortgage Life Insurance
Insurance that will pay a mortgage loan if the borrower dies before the loan is repayed.

N

Negative Amortization
The opposite of amortization. The amount owed increases since the total amount of interest owed is not covered by the mortgage payments.

O

Origination
The steps taken by a lender to make a loan. These steps include accepting a loan application, processing and underwriting the application, and closing the loan.

Origination fees
Loan processing fees charged by the lender. This fee may be expressed in the form of points or a dollar amount and is typically 1% of the loan amount.

Overages
The difference between the lowest offered price and any higher agreed upon price for a loan. Under the terms of some loan agreements, part or all of the difference is kept by the lender.

P

PITI
When escrow is used, a monthly mortgage payment covers (P)rincipal, (I)nterest, (T)axes and (I)nsurance (monthly housing expense).

Points
Fees payed to the lender at closing. One point equals 1 percent of the loan. For example, one point on a $100,000 loan would be $1,000

Power of Attorney
A legal document which authorizes one person to act on behalf of another.

Prepayment Penalty
A fee charged for an early repayment a the entire loan or prepaying a large portion. With a mortgage, early repayment usually occurs by selling the home or refinancing the loan.

Prime Interest Rate
The Federal Reserve decides whether the prime interest rate will move higher or lower based on several economic factors. Only the most creditworthy borrowers are offered financing at this rate.

Private Mortgage Insurance (PMI)
Insurance that protects the lender from losing money when a borrower defaults on a loan. If the down payment on a loan is less than 20% selling price of the home, this type of insurance is often a requirement.

Primary Mortgage Market
The market in which mortgage loans are directly made to borrowers by, commercial banks savings and loan associations, and mortgage companies. These lenders, also, at times, sell the mortgages they make on the secondary market to obtain more funds for future loan origination.

Principal
The amount of money lent, minus interest.

R

Recision
The law that gives a homeowner three days to cancel a contract when home equity is used as security.

Redlining
Arbitrarily denying mortgage loan applications in certain geographical areas -- usually ones occupied by minorities -- regardless of the applicant's qualifications.

Refinancing
When a loan is repayed using money borrowed from another loan using the same home as collateral.

Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide home mortgage borrowers with information regarding all closing costs, lender servicing, and escrow account practices.

Reverse Mortgage
A reverse mortgage is a loan against the equity in your home to be repayed upon death, the principal resident(s) moving out, or the sale of the home. The loan is set so the amount owed is never greater than the value of the home. A home owner must be at least 62 years old to qualify.

Rural Housing Service (RHS)
An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.

S

Secondary Mortgage Market
The market in which mortgage loans and mortgage backed securities are bought and sold.

Servicing Disclosure Statement
A Federal law requiring a lender to disclose to the borrower whether they believe someone else will at some point take over as mortgage servicer. The duties of a mortgage servicer include, securing payments, resolving any disagreements, taking care of escrow related tasks, and performing other duties after closing.

Settlement or Settlement Costs
See Closing.

Subordinate Financing
Any mortgage with lower priority than the first mortgage.

Sweat Equity
Labor or services performed by the borrower considered to be a contribution to the mortgage down payment.

T

Term Mortgage
See Balloon payment

Third-Party Origination
See Mortgage Broker

Total Annual Loan Cost (TALC)
With reverse mortgages, shows the projected annual average cost in a way that includes ALL of the costs and benefits -- also takes into account the "nonrecourse" limits.

Treasury Index
One of the indexes used to determine interest rate changes for certain adjustable-rate mortgages (ARM). Its movement is based on the results of auctions by the U.S. Treasury of Treasury bills and securities.

Truth-in-Lending Act (TILA)
A federal law requiring creditors to disclose the cost of credit as a dollar amount and as an annual percentage rate (APR).

U

Underwriting
In mortgage lending, the loan application evaluation process used to estimate the risk involved for the lender. The decision whether to approve a loan is based on an analysis of the applicants ability to repay the loan, creditworthiness, and the value of the property securing the loan.

V

Veterans Affairs (U.S. Department of Veterans Affairs)
The federal government agency which provides benefits to veterans and their dependents, financial assistance, educational assistance, including health care, and guaranteed home loans.

VA Guaranteed Loan
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA).