Chicago Condos Online - Wed December 1, 2021

Chicago Mortgage Terms and Definitions

Chicago Condos Online has come up with a comprehensive list of Mortgage Terminology just for you. All terms are listed alphabetically:


Abstract of Judgment - Legal document indicating the amount of money the losing party in a lawsuit has been ordered to repay. If properly filed with the County Recorder's Office in the geographical area in which the said property is situated, the document serves to place a lien against the property in question.
Accelerated Depreciation - Accounting practice by which a property owner can legally subtract a sizable portion of a property, whose value has dramatically depreciated within a short time period after it having been purchased.
Acquisition Indebtedness - Loan taken out by a property owner in an effort to build, buy, or significantly improve a home. In most instances, the money borrowed for these purposes is considered to be a tax-free loan.
Adjustment Period - Pertaining to Adjustable Rate Mortgages (ARM,) the term refers to the leveled- off, interim periods that occur in-between fluctuations in the rise and fall of interest rates.
Adjustable Rate - An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Affordability Analysis - An analysis of a buyer’s ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
Amortization - A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Back Title Letter - Official document describing the sale terms and ownership pertaining to a specified property. Produced by a title insurance company, this becomes the property of either a buyer or seller's attorney upon the sale of the said property.
Balloon Mortgage - Type of mortgage home loan structured whereby the borrower makes consistently, regular payments up until the end of the term when a sizably, large final payment (balloon payment) comes due in conjunction with the loan's maturity date.
Blanket Mortgage - More commonly associated with commercial real estate dealings, this type of loan is generally secured to covered multiple structures.
Cap - The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.
Capital Gains - The amount gained by an owner in the sale of property or other valuable assets.
Capitalization - A useful technique by which one reviews the rate of return and the property's annual income(net as opposed to gross) in an effort to approximate the perceived market value of a particular commercial or rental structure.
Cash Out - Receiving money back when refinancing your present mortgage.
Certificate of Title - Drafted by either a lawyer or a title company, legal document affirming that the present owner of a said property is indeed the person who has the authoritative right to ownership over that asset.
Compound Interest - Interest determined by first establishing the rate of interest for the current period, adding that figure to the original principal, and then calculating the interest for the next period by using this new adjusted amount in place of the original principal.
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Credit Limit - The maximum amount that you can borrow under a home equity plan.
Credit Repository - Former, out-of-date, term used in reference to a credit reporting agency.
Default - Status yielded when a borrower or renter neglects to meet his | her duties as outlined within the lease or mortgage documents. Most common contributors include: failure to make regular, consistent payments and misrepresentation of one's financial worth | background.
Debt Service - The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Delinquency - A mortgage payment that is more than 30 days late.
Distressed Property - Property which either is in a dilapidated physical condition or is owned by an individual who is undergoing a period of economical instability.
Down Payment - The difference between the value of purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Due-On-Sale Clause - A provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market.
Encumbrance - Any financial penalty pending against the value of a property. Specific varieties include: liability, lien and | or charge.
Entitlement - The VA home loan benefit is called an entitlement.
Equity - The portion of the value of the home owned outright by the owner. Hence, this is the dollar figure, calculated by subtracting any outstanding moneys owed (mortgage balance due) from the present market rate of the home, the homeowner has paid for up until a specified date. So long as mortgage payments continue to be met and the value of the home is maintained, equity, over time, generally grows.
Escrow - Account, held by a third party, in which all pertinent materials, currency and paperwork are held until the sale is officially confirmed. After the sale goes through, the funds remains in place as a place in which to deposit additional funds to cover regular mortgage payments, property taxes, homeowners' insurance and incidentals.
Fallout - Loan applications that are withdrawn by borrowers, sometimes because they have found a better deal.
First Mortgage - A mortgage which is in first lien position, taking priority over all other liens.
Fixed Rate Mortgage (FRM) - A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.
Float - Allowing the rate and points to vary with changes in market conditions.
Forbearance - A postponement of foreclosure commonly occurs because the borrower has made arrangements to pay the overdue amount.
Foreclosure - Legal procedure during which property is sold to pay off the mortgage of a defaulting borrower. As a result, the borrower is deprived of any earning any interest on the property or other funds associated with ownership of the home, when sold at public auction.
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Graduated-payment mortgage (GPM) - Type of residential home loan whereby payments begin low and, gradually over time, increase until, eventually, they reach a plateau and level out to a fixed payment rate.
Good Faith Estimate - A written estimate of closing costs which a lender must provide you within three days of submitting an application.
Guaranteed Mortgage - A loan guaranteed by a federal government department, such as the Veteran's Administration, or by a non government corporation, group, or individual. The guarantee protects the lender if the borrower defaults.
Gross Income - The income of the borrower before taxes or expenses are deducted.
Home Equity - The unencumbered value of an owner's home. Equity is calculated by subtracting any liens and unpaid mortgage principal from the fair market value of the home. Equity increases as loans are paid down and the home increases in value.
Hazard Insurance - A contract between purchaser and an insurer, for compensation of the insured for loss of property due to hazards, for a premium.
Housing investment - The amount invested in a house, equal to the sale price less the loan amount.
HVAC - Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
Index - The interest rate on an Adjustable Rate Mortgage (ARM) is tied to an index, or published interest rate, which is not controlled by the mortgage lender. The interest rate and its connecting index may fluctuate. Other variable rate loans, such as credit card debt, are also connected to indexes.
Initial Interest Rate - The interest rate that is fixed for some specified number of months at the beginning of the life of a an ARM.
Interest Rate - The yearly sum charged on a loan. Different types of loans have different rates.
Joint Credit - Credit issued to a couple taking into account their combined credit histories, assets, and incomes. Both people become responsible for the debt and usually a greater amount of credit is extended.
Late Fees - Fees that lenders are entitled to collect from borrowers who don't pay within the grace period.
Late Payment - Payment made by the borrower to the lender that arrives after the scheduled remittance date.
Lien - A claim against property for unpaid debts or services. A lien holder may sell the property to recoup funds or recover them after the property is sold to another individual. For validity purposes, this official document must be kept on record with the County Recorder.
Loan Amount - The amount the borrower promises to repay.
Loan Application - Within the confines of this formal document, when applying for a loan, a potential borrower is required to outline his | her financial situation in great detail.
Maturity - The day on which the remaining principal must be paid.
Maximum Loan Amount - The largest loan size permitted on a particular loan program.
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Mortgage - A lien on the property that secures the Promise to repay a loan.
Mortgage Lender - The party who disburses funds to the borrower at the closing table.
Mortgage Refinance - Situation whereby a borrower acquires a new loan | mortgage in order to cover an existing one. Reasons why borrowers take this step is to reduce their interests rates and | or liquidate cash from their home equity.
Multiple Listing Service or (MLS) - The Board of Realtors generates this database that includes all 'for sale' properties in a given geographical area. The service also lists properties for lease, but does not include homes put up for sale by the actual owner.
Note - A written promise to pay. Also called a promissory note.
Offer - Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Owner Financing - Situation in which the owner of a property lends the buyer either a portion of the entire sum of the property's agreed upon purchase price.
Payment Period - The period over which the borrower is obliged to make payments.
Pre-qualify - Determining the maximum amount an individual is eligible to borrow..
Prime For Life - A highly appealing loan because of the fact the interest remains at the same fixed rate for the entire span of the policy.
Qualifying Ratios - Lenders calculate these percentages to determine if a borrower qualifies for a mortgage. Lenders examine the percent of a potential borrower's before-tax income used to pay loans compared to his or her income.
Rate-improvement Mortgage - A loan permitting a borrower to reduce his or her interest rate once without paying refinance charges.
Referral Website - A mortgage website that shows potential borrowers to participating mortgage lenders.
Refinancing - The act of taking out a second mortgage in order to cover payments on a first mortgage. Most often, the purpose for which homeowners undertake such an action is to derive interest rates that are lower than under the original mortgage or to convert equity in the home into quick money.
Right of Rescission - Provision to a borrower to cancel a loan within three days of entering into the agreement. Provision is part of the federal Truth-in-Lending Act.
Second Mortgage - Loan that is considered to be adjunct to the first or original mortgage. This loan is secured by the equity of the property.
Secured Loan - Type of arrangement in which borrower has some form of backing i.e., collateral equal in value to the amount of money he | she is borrowing.
Sub Prime Mortgage - A loan to a borrower with poor credit. Because the borrower is considered sub prime, lenders charge a greater interest rate to make up for possible default on the loan.
Title - Exclusive ownership of property. Title, the right of ownership, is recorded in a deed. A deed is a legal document.
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Trading Up - Act of a homeowner selling a home considered to be of lower value in exchange for the purchase of a home considered to be of greater worth.
Truth-in-Lending Act - A federal law mandating that credit terms must be given to the borrower in a standard format to aid the borrower in comparing lenders' terms.
Underwriting - The method a lender uses to determine its risk in making a loan. Underwriting involves evaluating the quality of the borrower (i.e., creditworthiness) and the property.
Underwriting Requirements - The standards imposed by lenders in determining whether a borrower qualifies for a loan.
Unsecured Loan - The method a lender uses to determine its risk in making a loan. Underwriting involves evaluating the quality of the borrower (i.e., creditworthiness) and the property.
Variable-rate Mortgage - On this type of mortgage the interest rate is tied to an index, or published interest rate, which is not controlled by the mortgage lender. The interest rate and its connecting index may fluctuate.
Voluntary Lien - Term used to describe a legally backed action taken against a property owner in an effort to collect to an unpaid debt.
Wraparound Mortgage - A form of refinanced loan in which all of one's previous mortgage-related debts are pooled into one lump loan agreement.