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mortgage glossary

Mortgage Glossary for Borrowers | Disclosures Explained

Learn Mortgage Language Before You Shop for a Loan

mortgage glossaryNegative Amortization / Deferred Interest / Level Payment

Some mortgage lenders formerly offered these mortgage loans as adjustable rate loans. The increase in payments is limited and interest can be added to the principal of the loan. Thus a homebuyers can have a larger loan at the end of five years than when they started the loan. When discussing any type of adjustable rate loan with a mortgage lender be sure to ask whether it has the negative amortization feature. You do not want this type of loan.


Points are sometimes called discount fees, these fees charged up front by a mortgage lender. One point is equal to 1 per cent of the loan amount. These fees usually include loan origination fees and discount points. Typically points amount to 1% to 3% of the loan amount. Be careful that they are quoting you the total points and ask to see a "Good Faith Estimate" on each loan offer before signing up. (see See also APR)

Prepayment Penalty

A prepayment penalty is a fee charged by a mortgage lender if a loan is paid off early. These fees are becoming more popular for certain residential mortgage loans, so borrowers should ask about a possible prepayment penalty before deciding on a lender. You do not want a loan with a prepayment penalty.

Private Mortgage Insurance (PMI)

Most mortgage lenders require PMI insurance for loans that exceed 80% of the home's value. The insurance protects the mortgage lender, but the borrower pays a premium of .5% to 1% up front and a monthly charge. This insurance allows the borrower to obtain loans for which they would not ordinarily qualify.

Rate Cap

The rate cap is the limit on the amount an interest rate may change for an adjustable rate loan. For example, the term 2/6 means the rate may change up or down a maximum of 2% per year and 6% over the life of the loan.

Rate Lock

A rate lock is when a mortgage lender agrees to protect the interest rates, points, and term of the loan while it is processed. The borrower is usually asked to sign a rate lock form agreeing to the interest rate and the term of the interest rate lock. Depending on the length of the rate lock, you may be required to pay a fee to lock the loan.


A survey shows the exact outline of the property, including lot lines and placement of any improvements. Surveys are useful in determining if any encroachments exist. These can be a source of litigation or other difficulties affecting clear title. For example, a neighbor's garage may extend over the property's lot line, resulting in possible legal complications. Surveys also identify property correctly. A survey from a registered surveyor may be required when large parcels of land have been divided or when irregularities, such as streams or hills, affect the land.


A document that shows evidence of ownership of a piece of property.

Title Insurance

Title insurance is designed to protect the buyer against defects in the title of the property being purchased. Defects may include encumbrances to the property such as tax liens or past improper conveyance of the property. Depending on the local practices, the buyer or the seller may pay for title insurance.

Zero or No Closing Cost Loans

In this case borrowers trade a higher interest rate on their mortgage loan for lower closing costs. These loans make sense for refinancing and when the borrower expects to have the mortgage for only a short period. This is the opposite of a buy down.

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