Mortgage Glossary

Accelerate: An option given to lenders through an “acceleration” clause in the mortgage or deed of trust requiring the borrower to pay the entire balance of the loan all at once if their loan is in default or if the borrower violated one provision or another, such as transferring the property to a third party without paying off the loan.

Amortization: A payment schedule calculated using the interest rate, the number of years, and the number of payments per year.

Appraisal: The process in which a licensed or authorized person gives an estimate of property value.

Appreciation Assignment: The transfer of property to be held in trust or to be used for the benefit of the creditors (lenders).

Assignment: The written transfer of an interest in a lease of mortgage. The lessee, or assignor transfers the remainder of the term and the assignee becomes liable to the original lessor for the rent.

Balloon Payment Mortgage: A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal. It is common for these loans to be rather short terms, less than 10 years.

Blanket Loan: A loan secured over multiple properties.  In the even of default, foreclosure proceedings can take place simultaneously over all properties secured by the blanket loan.

Bridge Loan: Bridge loans are loans intended to be used for a short period of time between the initial requirements for funds and a permanent, usually less costly, financial solution.  This term is synonymous with a Private Money Loan or a Hard Money Loan.

Commercial Lender: Commercial lenders offer a variety of mortgage-backed loans for commercial property. Each commercial lender sets economic, demographic, and geographic criteria.

Deed of Trust: A three party security instrument conveying the legal title to real property as security for the repayment of a loan. The three parties included in a deed of trust are the trustor (borrower), the beneficiary (lender), and the trustee.

Deed In Lieu of Foreclosure: Deeding the property over to the lender as an alternative to having the lender foreclose on the property.

Fair Market Value: The price a property would sell for on the open market.

First Mortgage: The primary mortgage on a property that has priority over all other voluntary liens.

Grant Deed: The most common legal form used to transfer interest in a property.  In addition to transferring the Grantor’s interest in the property, the Grant Deed also warrants that the grantor actually owns the property and the new owner will not be liable for any unknown ownership claims.  See Quit Claim Deed.

Hard Money Loan: A hard money loan when the borrower’s situation does not conform with common real estate lenders’ standards for funding. Real estate provides the collateral for a hard money loan.  This term is synonymous with a Bridge Loan or Private Money Loan.

Hard Money Lender: A lender who offers loan funding based on real estate as the primary collateral asset.

Impounds: The collection of taxes and insurance into the monthly mortgage payment.

Index: For all adjustable rate mortgages or ARM loans, the interest rate is calculated by adding the Index plus the Margin.  Common Indexes include the LIBOR and the Prime Rate.

Letter of Intent: A non-binding agreement between parties involved in a contract to move forward with negotiations or complete a project.

Lien: A legal claim upon real or personal property for the satisfaction of a debt.

Loan to Value: A simple ratio of the requested loan amount to the full market value of the collateralized property.

LTV: See Loan To Value.

Market Value: A certified, written estimate of value calculated by an independent, licensed appraiser.

Mortgage: A mortgage is commonly used to describe bank loans secured by real estate, but in California and many other states, a Deed of Trust is used rather than a mortgage.  A mortgage is different in several ways, but notably, mortgages are falling out of use due to the difficulty in processing a foreclosure proceeding.

Non-Conforming Loan: A non-conforming loan refers to a type of loan that does not meet bank standards for funding. The flexibility of private money can allow for a much wider range of projects to be funded, although additional collateral and documentation may be required by the lender.

Personal Property: Property other than real property (real estate) consisting of things that are temporary or movable.

Point: A point is 1 percent of the amount of the mortgage.

Pre-Approval: A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. This process is independent of, and previous to, the same underwriting review of a property.

Prepayment Penalty: A charge or penalty for prepaying a loan prior to an agreed-upon amount of time after close of escrow.  Typically, this is in the form of guaranteed interest or as a percentage of the outstanding loan balance.

Private Money Loan: See Bride Loan or Hard Money Loan.

Quitclaim Deed: A quitclaim deed transfers the Grantor’s interest in the property but this document does not include warranties that the Grantor, in fact, has legitimate interest in the property.  See Grant Deed.

Right of Redemption: A borrower’s right to reacquire property lost due to a foreclosure. Governed by state law.

Underwriting: The process that lenders go through to evaluate the risks posed by a particular borrower and to set appropriate conditions for the loan.

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