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Strengthen Your Mortgage Vocabulary

How-To Guides
mortgage vocabulary

It is important to strengthen your mortgage vocabulary and learn the language of real estate finance. If you are a loan officer, become familiar with all of the jargon you use daily and beyond. There are several steps to be aware of between pre-approval and closing. 

Keep reading to learn some mortgage vocabulary to add to your glossary. After all, you serve as the expert to your customers! 

mortgage vocabulary

Mortgage Vocabulary

Whether you are about to tackle the mortgage process for the first time with a customer, or the hundredth time, you need to understand the mortgage vocabulary behind the process. Over the years, the industry has developed its own unique vocabulary that consists of thousands of terms.

So, there is always room to expand your glossary of terms and pass this information on to your clients. Although it is impossible to memorize every definition, it is necessary to learn the essential phrases.  

Additional Mortgage Vocabulary Terms

There are hundreds of additional mortgage vocabulary terms that you will run across in the course of your career. So, here are some essential ones to know. Also, they tend to appear most frequently in documents, and your borrower may not be familiar with them.

Annual Percentage Rate (APR)

The yearly cost of a mortgage including interest and other expenses or charges such as private mortgage insurance and points expressed as a percentage.

Acceleration Clauses 

These allow the lender to promptly call the loan due and payable in full if default occurs. In other words, the borrower has to immediately pay the entire outstanding balance.

Alienation Clauses

These allow the lender to call the loan due and payable if the property is sold. It prevents the borrower from transferring the loan obligation to a new owner. It is also called a due-on-sale or non-assumption clause.

Debt Service

This service refers to the loan payments of principal and interest only. It does not include taxes and insurance.

Default

The failure to repay the principal and interest on a loan. Default also occurs when the borrower fails to pay property taxes or keep the property adequately insured.

Equity

The monetary difference between your mortgage balance and the actual market value of your home.

Escalation Clauses

These write into a loan agreement to allow for payments to increase at a specified time by a specified amount. This term is more frequently found in lease and purchase contracts.

Nondisturbance Clauses 

These protect the rights of tenants if the owner defaults and the lender forecloses on the property.

FHA Loan

Fixed- or adjustable-rate loan insured by the Federal Housing Administration. FHA loans design to make housing more affordable, particularly for first-time home buyers.

Fixed-Rate Mortgages

Mortgage with an interest rate and a payment that doesn’t change over the term of the loan. So, should the current market interest rate fall below your fixed rate, contact your mortgage expert right away to discuss the benefits of refinancing. 

Nonrecourse Loans

These are mortgages secured by a pledge of real property, but the borrower is not made personally liable in case of default. A nonrecourse loan also usually includes so-called “bad boy carve-outs.” These are exceptions that result in full-recourse liability for the borrower if certain promises are broken, such as if the borrower commits fraud or other acts of malfeasance.

Recourse Loans

This type of loan allows the lender to pursue borrower assets that are not used as loan collateral, or to take legal action in case of default in order to pay off the full debt.

Underwriting

In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.

Bottom Line

Often, your clients will have a question about particular phrases on a document, and being extremely familiar with this vocabulary will make you even more trustworthy. After all, loan officers have an obligation to make clear to the borrower the meaning behind each document and agreement. So, try to become as fluent as you can in the plethora of mortgage vocabulary! Start with the basics and expand from there.