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Adjustable-Rate Mortgage (ARM)

A mortgage with a variable interest rate, which adjusts monthly, biannually, or annually.


The gradual reduction of the mortgage debt over time through regularly scheduled payments.

Annual Percentage Rate (APR)

APR is the truest cost of a home loan. In the mortgage industry, APR typically includes fees such as documentation fees, private mortgage insurance and more.


A comprehensive report prepared by a qualified appraiser that determines the value of a property based on a number of valuation factors.


The act of assuming responsibility for the repayment of a mortgage lien.


Balloon Mortgage

A short-term mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump-sum payment or refinance the loan.


A proceeding in Federal Court that alters or eliminates an eligible individual’s obligations to repay some or all of his or her debts to creditors. Different chapters or types of bankruptcy exist. If a person files bankruptcy, this could negatively affect his or her credit.


A third-party person who arranges funding or negotiates contracts between parties, but does not lend the money directly.

Buy Down

The act of securing a lower than par interest rate by paying the lender a premium.



For an adjustable-rate mortgage (ARM), a limit on how much and how frequently an interest rate can change.

Certificate of Title

A statement provided by a title company or attorney stating who holds title to real estate based on the public record.

Closing Costs

Costs paid by the buyer and/or seller to transfer ownership of a property and close the mortgage loan. These may include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Closing costs will vary according to the area of the country; your Mutual of Omaha Mortgage loan officer is able to provide estimates of closing costs for you.


The conclusion of a real estate transaction, also called settlement. At the time of closing, documents that transfer legal ownership of the property are signed and closing costs are paid.


An asset used to secure repayment of a loan.


A formal notification by a lender to provide a loan with specific terms or conditions to a borrower.

Construction Loan

A short-term interim loan for financing the cost of home construction. Typically, the lender makes payments to the builder at scheduled intervals as the construction progresses.

Conventional Loan

A home loan that is not insured or guaranteed by the federal government, can be for conforming or nonconforming loan amounts.

Credit Report

A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk.


Debt-to-Income Ratio

The ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower. This calculation is used in determining the mortgage amount that a borrower qualifies for.


A document that legally transfers ownership of real estate from a seller to a buyer. It’s delivered to the buyer at closing.


The failure to make mortgage payments on time or to comply with other terms of a mortgage loan.

Deferred Interest

The amount of interest added to the principal loan balance when a borrower pays less than the interest-only note rate, such as may be the case with an ARM.


Failure to make monthly payments as scheduled. Foreclosure on the property is a possible result.

Department of Veterans Affairs

An independent federal agency which guarantees long-term, low- or no-down payment mortgages to eligible veterans or active duty members of the military.


A decrease in the value of a property due to market conditions or other causes.

Discount Point (or Point)

A fee paid by the borrower at closing to the lender in conjunction with a mortgage loan to lower or “buy down” the interest rate. One discount point equals one percentage point of the loan amount.

Down Payment

The amount of cash paid up front to make up the difference between the purchase price and the mortgage amount. Down payments can vary greatly, but typically fall between five percent and 20 percent of the sale price.


Earnest Money

A deposit made in good faith by the buyer under a sales contract toward the purchase price of the property. Typically, this money is not refundable, unless the terms of the contract are not met.


A right granted to persons other than the property owner to access and use a portion of the owner’s land. The most common easement is one granted to local authorities for utility maintenance.


The physical intrusion of a structure or improvement that trespasses on another’s property.


The difference between the fair market value (appraised value) of a home and the outstanding mortgage balances and other liens on the home.


A transaction in which a third party holds money for the seller or buyer, or for the borrower and lender, in order to handle legal documents and disbursement of funds.


Fannie Mae

See Federal National Mortgage Association

Federal Home Loan Mortgage Corporation (FHLMC)

Also known as “Freddie Mac,” the Federal Home Loan Mortgage Corporation buys and securitizes conventional mortgages for resale in the secondary market.

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development, the FHA provides mortgage insurance for certain residential mortgages. It sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.

Federal National Mortgage Association (FNMA)

Also known as “Fannie Mae,” the FNMA is a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. FNMA purchases VA, FHA, and conventional mortgages from primary lenders.

FHA Loan

A mortgage insured by the Federal Housing Administration that is also known as a government loan. FHA loans are open to all qualified home purchasers; however, they do come with loan amount limits based on the borrower’s county.

Fixed-Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan. This means that the monthly payments for principal and interest are also fixed for the life of the loan.


The legal process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan.

Freddie Mac

See Federal Home Loan Mortgage Corporation



The pledge of one party to pay a debt or fulfill a responsibility agreed to by another if the original party fails to pay or comply with the terms of the contract.


Hazard Insurance

Home insurance that protects a property owner from damages caused by fire or severe weather.



A financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Using the index, lenders can gauge the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments, which is then used to adjust the interest rate on an adjustable-rate mortgage up or down.

Interim Financing

A construction loan made during the completion of a building project. After completion of the project, a permanent loan typically takes the place of this loan.


Jumbo Loan

A loan that is larger than the conforming loan limits set each year by Fannie Mae and Freddie Mac. These loans typically carry higher interest rates than conforming loans because they can’t be sold to Fannie or Freddie.



A claim against property by the lender to secure repayment of debt. Property is said to be encumbered by a lien and the lien must be removed to clear title.

Lifetime Cap

A limit on how much the variable interest rate can increase during the term of an ARM loan.

Loan Origination Fee

A fee that covers the administrative costs of processing the loan. Typically, it is expressed in points with one point being one percent of the mortgage amount.

Loan-to-Value Ratio (or LTV Ratio)

The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral, expressed as a percentage. For example, a $200,000 home with a $160,000 mortgage has an LTV of 80 percent.

Lock-In Period

The time period during which the borrower is guaranteed an interest rate by the lender. Lock-in periods typically range from 30 days to more than 90 days.



For an adjustable-rate mortgage (ARM), it is the number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate adjustments. The margin is constant throughout the life of the mortgage and is stated in the note.

Market Value

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage, the market value is usually determined by an appraisal. Also called fair market value.


A legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.

Mortgage Banker

A company that originates and services mortgages exclusively for resale in the secondary mortgage market (to other lenders and investors). Certain mortgage bankers are subsidiaries of depository institutions or their holding companies but do not receive money from individual depositors.

Mortgage Broker

An individual or company that, for a fee, acts as an intermediary between borrowers and lenders.

Mortgage Insurance (MI)

For conventional loans, insurance that protects the lender from loan default. If the down payment is less than 20 percent, most lenders will require mortgage insurance, also called private mortgage insurance (PMI).

Mortgage Insurance Premium

Insurance provided to the lender from the Federal Housing Administration (FHA) to cover an instance of the borrower defaulting on the mortgage. Borrowers pay 1/2 percent each month on FHA insured mortgage loans.


Negative Amortization

When a borrower’s mortgage payments do not cover all the interest due on the loan, unpaid interest is added to the unpaid balance of the loan. As a result, homebuyers may end up owing more than the original amount of the loan.

Net Effective Income

The borrower’s gross income minus federal income tax.

Non-Assumption Clause

A portion of a mortgage contract prohibiting the assumption of the mortgage without the approval of the lender beforehand.


Origination Fee

A percentage of the loan amount charged by the lender for completing the loan process.



An acronym for principal, interest, taxes, and insurance, the four primary components of a monthly mortgage payment.


See Discount Point

Prepaid Expenses

The expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).


An amount paid to reduce the principal balance of a loan before the principal is due.

Prepayment Penalty

A penalty assessed by the lender to the borrower in the early years of a mortgage loan for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principal balance.


A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process estimates how much money a prospective homebuyer may be eligible to borrow.


The amount of money borrowed on a loan.

Private Mortgage Insurance (PMI)

If your down payment is less than 20 percent, most lenders will require you to get private mortgage insurance. This is insurance that protects the lender if you default on your loan. It usually costs from 0.15 percent to 2.5 percent of the loan amount. Also called mortgage insurance.


Recording Fees

A lender is paid this money for recording a deed or security instrument.


Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates, or reduced financing costs.


The cancellation of a contract. By law, the homeowner has three days to cancel the new loan if the agreement uses equity in the home as security.


Real Estate Settlement Procedures Act. A consumer protection law that, among other things, requires advance disclosure of settlement costs to homebuyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.


Second Mortgage

A mortgage taken out behind a first mortgage, either concurrently or after the fact.

Simple Interest

Interest calculated only on the principal balance.


A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, right of way, encroachments and other physical features.



Indicates ownership of property. A property owner is said to be “in title.”

Title Insurance

Protection against loss or damage resulting from an error in title ownership to a particular piece of property.

Title Search

When a title company or title attorney researches municipal records to verify the legal ownership of a property.

Truth-in-Lending Act

A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.



The lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate, term, and loan amount.


VA (or U.S. Department of Veterans Affairs)

A federal government agency that provides benefits to veterans, active duty military and their dependents, including guaranteed home loans.

Verification of Deposits

The borrower’s financial institution signs this document to verify the status and balance of his/her financial accounts.

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