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HSBC Mortgage Services
Online Mortgage Glossary
Click on any letter below to go to the corresponding section of this glossary.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
additional principal payment
A payment made by a borrower above the scheduled amount due in order to reduce
the principal balance on the loan.
adjustable-rate mortgage (ARM)
A mortgage that allows the lender to adjust the interest rate at certain intervals during
the term of the loan
adjustment date
The date when the lender may change the interest rate on an adjustable-rate
mortgage (ARM).
adjustment period
The length of time between adjustment dates for an adjustable-rate
mortgage (ARM).
amortization schedule
A table that shows how much of each mortgage payment is applied to the interest and
to the principal of the loan balance, for the life of the loan.
annual percentage rate (APR)
A term defined in section 106 of the Federal Truth in Lending Act, which expresses on an
annualized basis the charges imposed on the borrower to obtain a loan, including
interest, discount and other costs.
appraisal
A written estimate of a property’s value based on a qualified appraiser’s
analysis.
assessor
A public official who establishes the taxable value on a property.
assignment
Transferring ownership of a mortgage from one person to another.
assumable mortgage
The responsibility of the mortgage is assumed by the buyer when the home is sold. A
stipulation in an assumable mortgage allows a buyer to assume responsibility for the
mortgage from the seller. It is not required for the loan to be paid in full by the original
borrower upon sale or transfer of the property.
assumption
Transferring ownership of the the seller’s existing mortgage to the buyer.
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auto-post payment
Payment made by phone, web, or through a servicing or default representative.
automated clearing house (ACH)
Electronic drafting system that debits an authorized bank account and electronically
transfers funds scheduled for remittance.
automated payments
Payments made on a loan that are automatically scheduled to be debited from an
authorized bank account.
balloon mortgage
A mortgage with periodic installments of principle and interest that do not fully amortize
the loan. The balance of the mortgage is due in a lump sum at a specified date, usually
at the end of the term, which might be in five to seven years.
balloon payment
The lump-sum payment due at the end of the specified term of a balloon mortgage.
bankruptcy
Court proceedings to relieve the debts of an individual or business unable to pay its
creditors.
binder
A preliminary document, coupled with a deposit of pledge money, under which a
buyer offers to purchase real estate.
bi-weekly payment mortgage
A mortgage that provides the borrower a substantial savings in interest by requiring
payments every two weeks instead of the traditional monthly installment plans.
borrower
A mortgagor who receives funds in the form of a loan with the obligation of repaying the
loan with interest (if applicable), and in addition, any person purchasing (aka
“purchaser”) the real property securing the loan, executing the promissory note,
executing a guaranty of the debt evidenced by the promissory note, or signing a security
instrument in connection with a loan.
cap
A stipulation of an adjustable-rate mortgage that dictates how much the interest rate or
mortgage payment may increase or decrease over the lifetime of the loan or upon any
individual adjustment date.
capital gains
The gains realized on an investment that is sold for more than the purchase price.
cash-out refinance
A refinance transaction in which the borrower receives money that exceeds the total
amount needed to repay the existing first mortgage. The additional cash generally may
be used for any purpose by the borrower.
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certified funds
Guaranteed or collected funds. For example: money orders, cashiers checks, or Western
Union transfers.
chain of title
The collection of all documents that trace the history of a property’s title from the
earliest recorded document to the most recent.
Chapter 7
Bankruptcy filing which gives a trustee the power to distribute a debtor’s assets to
creditors. Also called a “liquidation.”
Chapter 11
Reorganization by a business allowing the debtor to maintain operating control of the
business while restructuring debts and working out a repayment schedule acceptable
to the creditors. Also called “debtor in possession.”
Chapter 13
A debtor repayment plan where an individual debtor files a budget with the court and
agrees to make partial payments to creditors over a three- to five-year period. Also
called “wage earner plan.”
closing
The final step in buying or selling a home, during which the buyer and seller, or their
representatives, meet to sign mortgage agreements and official documents transferring
the property. Also called settlement.
closing agent
An individual hired to coordinate the various closing activities including preparing and
recording closing documents and disbursing funds.
closing costs
Expenses in addition to the price of the property to be paid by the buyers and sellers in
transferring ownership of property.
closing date
The date set to finalize the mortgage process. Often, a real estate agent will
coordinate this date with the seller, the closing agent and the lender. It is important
that the closing occurs before the lender’s commitment letter and any rate
guarantees expire.
closing statement
A document received at a closing that itemizes all of the final costs associated with the
purchase or sale of a home. Also called settlement statement.
compound interest
Interest computed on both the original principal and accrued interest.
contingency
A stipulation that must be satisfied before a contract is legally binding.
conventional loan
A mortgage loan not originated under a government-insured program (FHA or VHA)
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convertible ARM
An adjustable-rate mortgage that can be changed to a fixed-rate mortgage under
explicit criteria.
credit bureau/report
Companies that collect credit information on individuals and offer it to lenders in order
to facilitate credit decisions. The three major credit reporting bureaus in the US are
Equifax, TransUnion, and Experian.
credit history
The record of how a person uses the credit they have.
credit limit
The maximum amount that someone can borrow in a revolving credit arrangement.
credit line
A revolving credit agreement that allows someone to write checks or make cash
withdrawals, at their discretion, of any amount up to the credit limit.
credit report
A document that contains summaries of how you’ve repaid previous loans or other credit
arrangements, any public record information, addresses, employers, etc.
credit score
All the information on a credit report is converted to a number. A lender may use this
number to assess a potential borrower’s ability to repay a loan on a timely basis. Scores
used for mortgage lending generally range from 300 to 900. The higher the credit score,
the better.
curtailment
A partial payment (extra payment or principal curtailment) to reduce the principal.
Funds are applied directly to the principal balance.
curtailment reversal
A of an incorrectly applied payment to loan principal.
daily simple interest (DSI)
A method of establishing borrower payments based on daily interest charged on
the outstanding principal balance of the loan. Principal is reduced by the amount of
payment in excess of the accrued interest.
deed
The legal document declaring ownership of a property.
deed-in-lieu
A deed given by a borrower/mortgagor to a lender/mortgagee to satisfy a debt and
avoid foreclosure.
default
Failure to make a required payment. If you default, you may lose any property that was
collateral for the loan, and your default will have a negative impact on your credit score.
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delinquency
Failure of a borrower to make timely payments specified under a loan agreement.
discharge
The release of a debtor from all debts that are provable in bankruptcy and are in
accordance with the bankruptcy code.
down payment
The amount of money you’ll need to pay in cash when purchasing a home. Most down
payments traditionally range from 10% to 20% of the home’s purchase price.
earnest money deposit (EMD)
A cash deposit made by the prospective buyer to show his or her commitment to
purchasing a house. This money is deposited in an escrow account and will
ultimately be applied to the buyer’s closing costs.
Equal Credit Opportunity Act (ECOA)
A federal law that mandates all lenders and creditors to make credit available to all
applicants based on objective qualifications and not race, religion, gender, marital
status, or receipt of income from public assistance programs.
equity
The net value of an asset. In the case of real estate, it would be the difference between
the present value of the property and the mortgage amount on that property.
escrow
Money (or other item of value) deposited with a third party to be paid out upon
satisfying established requirements.
eviction
To force an occupant from real property by legal process.
Fair Credit Reporting Act
A federal consumer protection law that sets the guidelines for maintenance of
consumer credit reports by credit bureaus and details the course of action necessary for
correcting mistakes on one’s credit record.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development whose main activity is
to insure residential mortgage loans (and government loans) made by private lenders.
fee billing
Fees charged to the account for fax, payoff, payoff history or corporate advance fees.
fee posting
Displays the fee being paid such as late charges, fax, payoff, payoff history or corporate
advance fees.
first mortgage
The primary note on a property. This term is generally applied after a borrower
takes out a “second mortgage” against the same property.
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fixed-rate mortgage (FRM)
A mortgage whose interest rate remains the same for the life of the loan.
forbearance
The act of refraining from taking legal action despite the fact that the mortgage is in
arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to
pay the amount owed at a future date.
foreclosure
The repossession of a home by a mortgage lender, as a result of the borrower missing
mortgage payments and defaulting on the loan.
good faith estimate (GFE)
A written estimate of the settlement costs you can expect to pay at closing.
hazard insurance
Insurance that provides compensation for physical damage to property following:
vandalism, fire, or natural disasters.
home appraisal
An independent, third-party’s assessment of a home’s value. In general, lenders won’t
allow someone to borrow more than the value of the home, even if the borrower
agreed to pay more than the appraised value.
home equity loan
A loan based on a borrower’s equity in their home. The borrower receives a lump sum
principal, and makes monthly repayments over time. Also called a second mortgage.
home equity line of credit (HELOC)
A revolving credit agreement that allows you to write checks for any amount up to the
credit limit at your discretion. Your home is the collateral for the line of credit.
hybrid mortgage
A mortgage with a fixed interest rate for a certain period of time, and then an
adjustable interest rate for the remainder of the loan’s term.
homeowner’s insurance
Required insurance equal to at least the replacement cost of a house, to ensure that the
property will be fully restored in case of a total loss.
HUD
Abbreviation for the Department of Housing and Urban Development.
HUD-1 Statement
A form published by the Department of Housing and Urban Development (HUD) used to
provide an itemized listing of the funds that are payable at closing. This listing includes
real estate commissions, loan fees, points, and initial escrow amounts. Totals are
calculated at the bottom of the statement, tallying the seller’s net proceeds and the
buyer’s net payment at closing.
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insurance binder
A document declaring that insurance is temporarily in effect. A permanent policy
must be secured before the expiration date of the interim insurance.
item receipt
Receipt of an automatic payment or a mailed check.
interest
In a credit arrangement, the amount, figured as a percentage of your unpaid balance,
you pay the lender. With a savings account, the amount a bank pays you for keeping
your money on deposit. Interest is usually figured as a percentage of your total deposit.
Simple interest is calculated only on the principal. Compound interest is calculated on
the principal and any earnings or interest that accumulates.
interest-only (IO) loan
A non-amortized loan in which interest payments are due regularly until the debt is due,
at which time the full principal of the loan is due.
interest rate ceiling
The maximum interest rate increase allowed on an adjustable-rate mortgage
(ARM), as specified in the terms of the mortgage note.
interest rate floor
The minimum interest rate allowed on an adjustable-rate mortgage (ARM) as
specified in the terms of the mortgage note.
joint tenants with rights of survivorship (JTROS)
An ownership arrangement that the borrower has with a joint tenant - someone that
owns the property with the borrower - who will inherit the property upon the borrower’s
death.
judgment lien
A legal hold on the property of a debtor as a result of a court ruling.
late charge
A fee charged to a borrower when a payment is delinquent a certain number of
days past the due date (usually 15 days).
lien
A legal debt for a property that must be paid in full when the property is sold.
loan
Borrowed money that is repaid over a specified period of time (usually with interest).
loan origination fee
The fee that is charged to cover the administrative costs of processing a loan. This fee is
often defined in points (one point is equal to one percent of the mortgage amount).
loan-to-value (LTV) percentage
The ratio between a home’s mortgage amount versus its appraised value.
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lock-in agreement
An agreement by the lender to guarantee a specific interest rate if the loan is closed
within a designated time frame. A lock-in agreement can also determine the number of
points to be paid at closing.
loss mitigation
Actions taken to minimize losses resulting from accounts in default.
margin
For an adjustable interest rate loan, the margin is the number of percentage points
between the index rate and the interest rate you pay.
market value
A determination of a home’s value as compared to similar homes in its area that have
recently been sold, are currently on the market, or are currently under contract.
mortgage or deed of trust
A loan you receive from a bank that’s secured by the home you purchase with the
loan’s principal.
mortgage insurance (MI)
Insurance that protects the lender against loss caused by a borrower’s default. This
allows lenders to make loans with lower down payments.
negative amortization
An actual increase in the mortgage principal balance as a result of the monthly
payment not being large enough to cover both the interest and principal due.
no cash-out refinance (rate & term)
A transaction in which the mortgage amount is limited to the sum of the unpaid
principal balance of any existing first mortgage(s) and closing costs. Also known as a
rate reduction mortgage.
non-conforming mortgage loan
A mortgage loan in which the loan amount, the loan-to-value ratio, the term or some
other aspect of the loan exceeds permissible limits as specified in agency regulations.
non-sufficient funds (NSF)
A term that a bank uses to refer to a condition in an account when there is an attempt
to draft or withdraw an amount greater than the available balance.
note
A legal document that specifies the terms of repaying a debt.
origination fee
A lender’s fee for processing a loan application.
partial pay
Any amount paid which is less than the total amount due.
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payoff letter
A statement detailing the unpaid principal balance, accrued interest, outstanding late
charges, legal fees and all other amounts necessary to pay off the lender in full.
PITI
The four elements of a monthly mortgage payment: principal, interest, taxes and insurance.
PITI reserves
The amount of cash resources a borrower is required to have on hand after closing a
loan; it must equal the cost of paying for PITI for a preset number of months.
point
An amount equal to 1% of the principle amount of a mortgage. Points can be either an
origination fee charged by the lender for processing a loan application or a discount
fee charged by the lender to increase the yield on the mortgage loan.
power of attorney
A legal document in which you give another person the power to make financial
decisions for you under certain conditions, such as your incapacity.
preapproval
Before you begin looking for a home, you may submit a mortgage application to the
lender, and if you are preapproved, the lender will guarantee you’ll be able to borrow a
certain amount.
prequalification
A process by which a lender gives you general sense of how much you’ll be able to
borrow, but there’s no guarantee you’ll get final approval.
prepayment penalty
A fee that may result from paying off a loan before the scheduled due date.
prime rate
The interest rate that banks charge to their most creditworthy customers for short term
loans.
principal
For a mortgage or other loan, the amount you borrow.
promise to pay
A commitment from the borrowers to pay on their account at a future date.
rate lock
A rate guaranteed by a lender to a borrower for a specific period of time.
real estate owned (REO)
Property a lender acquires as the result of foreclosure.
Real Estate Settlement Procedures Act (RESPA)
A federal law designed to protect consumers by requiring, among other things,
lenders to give borrowers advance notice of closing costs.
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rescission
The act of annulling the terms of a contract or transaction through legal means or
by mutual consent.
redemption
A defaulted mortgagor’s right to redeem the property after default, usually regulated by
state law.
refinance
A process through which you pay off your existing mortgage by arranging a new
mortgage with a lower interest rate or shorter term, or both.
restructure
The modification of a loan’s the basic terms, interest rate, maturity date, or collateral as a
result of, or in anticipation of delinquency. Also referred to as re-aging or loan extension.
reversal
The reversal of an incorrectly applied payment. For example, if a payment made had
insufficient funds or a stop payment, or if the payment was applied to the wrong
account number, the payment will be reversed.
second mortgage
A loan whose collateral is the equity you have in your home. You receive a lump sum
principal, and make monthly repayments over time. Also called a home equity loan.
servicer
A company that receives payments from borrowers and manages borrowers’
escrow accounts.
settlement
The final step in buying or selling a home, during which the buyer and seller or their
representatives meet to sign mortgage agreements and official documents transferring
the property. Also called closing.
settlement sheet
A legal document itemizing the amounts to be paid by the buyer and the seller at
closing.
short sale
A workout program wherein the lender accepts less than the total payoff amount.
taxes and insurance
Refers to County Property tax and homeowners insurance that are either held in an
escrow account or paid directly by the homeowners.
term
The amount of time allowed to pay back the principal and interest for a mortgage or
other loan. For a bond, it’s the amount of time between when the bond is issued and
when it reaches maturity.
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title
Written evidence of the right to or ownership in property. In the case of real estate, the
documentary evidence of ownership is the title deed that specifies in whom the legal
estate is vested and the history of ownership and transfers. Title may be acquired
through purchase, inheritance, devise, gift or through foreclosure of a mortgage.
title insurance
Insurance designed to protect the lender and/ or the buyer against loss occurring from
debates over property rights.
transaction history
Dated details related to transaction activities on a loan
Tri-Merged Credit Report
A report summarizing someone’s credit history using information collected by three
credit bureaus - specifically: Equifax, TransUnion, and Experian.
Truth-in-Lending Act (TILA)
A federal law that mandates lenders to provide full, written disclosure outlining the
terms and conditions of a loan to a borrower.
underwriting
Analyzing a loan application to determine a borrower’s creditworthiness and the
quality of a property in order to ascertain the risk involved for the lender.
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