As you search for solutions to the challenges you face, you're probably bombarded by unfamiliar terminology and financial jargon. Here I've listed definitions to some of the most commonly used financial language to give you more confidence in your business dealings.


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Adjustable Rate Mortgage

A mortgage loan which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan.


Repayment of a mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.


An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.


Expresses on an annualized basis the charges imposed on the borrower to obtain a loan including interest, discount and other costs.

Balloon Mortgage

A mortgage with periodic installments of principal 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.

Down Payment

A portion of the sales price paid to a seller by a buyer to close a sales transaction, with the understanding that the balance will be paid at settlement.

DTI (debt to income ratio)

Relationship of a borrower's monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.

Earnest Money

A deposit made to bind the conditions of a sale of real estate.


Is the difference between the present value of the property and the mortgage amount on that property.


A loan made through an approved lender and insured by the Federal Housing Administration. While there are limits to the size of FHA loans, they are intended to finance moderately priced homes.

GFE (good faith estimate)

A document which tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality.

Home Equity Line of Credit

An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit.


Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMS, a predetermined margin is added to the index to compute the interest rate adjustment.

Jumbo Loan

A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.

Loan to Value Ratio

The ratio of the amount of the loan to the appraised value or sales price of real property.

Mortgage Insurance

Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments.

Negative Amortization

The unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Prepayment Penalty

A charge to the mortgage in order to discourage prepayment of the loan.


The repayment of a debt from the proceeds of a new loan using the same property as a security.

Reverse Mortgage

A mortgage which uses present equity in the property to fund monthly payments from the lender to the borrower in lieu of the borrower receiving the proceeds of the loan in a lump sum.


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 Insurance

A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee or otherwise.


In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.