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Mortgage Terms Defined

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  • Deed
    A legal document that transfers a property from one owner to another. The Deed contains a legal description of the property and is signed, witnessed and delivered to the borrower at closing.
  • Deed of Trust
    The document used in some states instead of a mortgage. Title is conveyed to a trustee.
  • Default
    Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
  • Deferred Interest
    Interest added to the balance of a loan when monthly payments are not enough to sufficient to cover it. See Negative Amortization.
  • Delinquency
    Failure to make mortgage payments on time.
  • Deposit
    This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
  • Depreciation
    When the value of a property declines.
  • Discount
    In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.
  • Discount Points (aka Points)
    Money paid to the lender at closing in exchange for lower interest rates. Each point is equal to 1% of the loan amount.
  • Down Payment
    Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
  • Due-On-Sale Clause
    Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.
  • Earnest Money
    Deposit made by the borrower in evidence of good faith when the purchase agreement is signed.
  • ECOA
    See Equal Credit Opportunity Act.
  • Effective Gross Income
    A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
  • Effective Interest Rate
    The cost of a mortgage expressed as a yearly rate, usually higher than the interest rate on the mortgage since this figure includes up-front costs.
  • Encumbrance
    A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, un-paid taxes and so on. These will usually have to be taken care of before a buyer may purchase a property.
  • Equal Credit Opportunity Act (ECOA)
    Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, martial status, or receipt of income from public assistance programs.
  • Equity
    The percentage of property value held by the owner; The difference between the current market value of the property and the outstanding mortgage balance.
  • Equity Loan
    A loan based on the borrowers equity in the home.
  • Escrow
    An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
  • Escrow Account
    Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner will not have to pay a large sum when the bills come due.
  • Escrow Disbursements
    The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
  • Escrow Payment
    The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
  • Escrow Waiver
    An escrow waiver is waiver of the requirement to fund an escrow account with the lender and instead pay insurance and taxes separately. The waiver may require a fee and is not available on all loan programs.
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