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Presidential Bank Mortgage provides the following Glossary of Terms related to mortgage home loans. Please contact one of our branches to learn how we can help you with your mortgage or refinancing needs.


Acceleration Clause

Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.

Adjustable-Rate Mortgage (ARM)

A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.

Adjustment period

The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Amortization Schedule

A document that lists periodic payments on a loan, calculated to pay off the debt at the end of a fixed period. The schedule breaks down each payment to show amount applied to principal and to interest and calculates the remaining principal balance after each payment.

Amount Financed

The loan amount less any prepaid finance charges.

Annual Percentage Rate (APR)

An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other charges at closing. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.


An estimate of the value of property, made by a qualified professional called an "appraiser."  Lenders require appraisals for all loans.

Appraisal Fee

A fee paid to the lender to cover the cost of a written report that estimates the monetary value of a property on the open market.


Assuming a mortgage is simply taking the loan over from the seller, per a contractual agreement between buyer and seller, and becoming liable for the repayment. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge may apply. The lender of record should be contacted as lender approval may be needed to release the seller from liability for the mortgage.

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Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the note and deed of trust.

Biweekly Mortgage

A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.


An individual in the business of assisting in arranging funding or negotiating contracts as an intermediary for a client. Brokers usually charge a fee or receive a commission for their services.


Interest rate is lowered by an upfront payment or subsidy, thus reducing the interest during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. This payment may be made by the buyer, a lender, a home builder or even the seller as a concession negotiated within the purchase contract.

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A limit on the increase in the interest rate or monthly payment in an adjustable-rate mortgage.


The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, documents are signed and the deed to the property is awarded to the purchaser. Also called settlement.

Closing Agent

A closing or settlement agent coordinates the various closing activities including recording the closing documents and disbursing funds after settlement or closing. Typically, a title company employee conducts the closing.

Closing Costs

Expenses incidental to the sale of real estate, including loan, title and appraisal fees.

Closing Date

Per contract, the date of the final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract.

Closing Disclosure (CD)

A document that replaces the HUD-1 Settlement Statement.  This document sums up the terms of your loan and itemizes the funds payable at closing.  It shows all funds collected from the buyer and seller and provides the net amount due at closing.


An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. It is also an agreement by the title company to provide title insurance.

Construction Loan

A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.


A condition that must be met before a contract is legally binding. Home purchasers often include a contingency in a home purchase contract that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. A contingency for financing specifies that if you do not get the mortgage financing you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit.

Conventional Loan

A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA).


Financing terms granted to an individual especially to fund the purchase of consumer goods.

Credit Rating/Credit Score

A numerical value that ranks a borrower's credit risk at a given point in time. Your credit score is based on all the information in your credit report. This information is converted into a number that lenders use to determine whether you are likely to repay your loan in a timely manner.

Credit Report

A report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Report Fee

A fee paid for a report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

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The legal document that entitles ownership of a piece of property.


Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage.

Deed of Trust

This document is used in place of a mortgage to secure the property as collateral for payment of a note.

Deferred Interest

See Negative Amortization.


Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)

An agency of the federal government which guarantees long-term, low or no down-payment loans to eligible veterans.

Discount Points

Prepaid interest assessed at closing when the borrower has locked in a rate with points. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). The interest rate may be "bought down" or lowered by paying discount points to secure a more attractive interest rate.

Down Payment

Money paid by the buyer to make up the difference between the purchase price and mortgage amount.

Due-On-Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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Earnest Money

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. This amount is typically in the form of a personal check or money order, however a promissory note may also be used.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.


The difference between the fair market value and current indebtedness, also referred to as the owner's interest. Current indebtedness would include all mortgages and equity lines which secure the property as collateral.


A neutral third party holds the documents and money involved in a real estate transaction and ensures that all conditions of a sale are met. Escrow also refers to a special account that a lender establishes to hold monthly installments from the borrower to cover property taxes and insurance.

E-Sign Disclosure - Consent

Allows the borrower to consent to electronic receipt of the mortgage loan transaction documents.

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Fair Credit Reporting Act

A federal law passed in 1971 that regulates the activity of credit bureaus. It is designed to prevent inaccurate or obsolete information from staying in a consumer's credit file and requires credit bureaus to have reasonable procedures for gathering, maintaining and disseminating credit information. The act also requires credit bureaus to show a consumer their credit file if the consumer presents proper identification, although the bureau reserves the right to charge a fee for doing so.

Fair Housing Act

Landmark federal law passed in 1965 and amended in 1988 that makes it illegal to deny rent or refuse to sell to anyone based on race, color, religion, sex or national origin. The 1988 amendment expanded the protections to include family status and disability.

Fannie Mae

See Federal National Mortgage Association.

Farmers Home Administration (FmHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae. An entity created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country. Not all homes meet the requirements set forth by FHA to qualify for this type of financing.

Federal Home Loan Mortgage Corporation

Also known as Freddie Mac.  See FNMA above


This stands for the Fair Isaac Company which develops credit bureau risk scores using a composite of the three credit reporting companies. These scores are called FICO scores. Fair Isaac scores are used by lenders and others to assess the credit risk of prospective borrowers and/or existing customers in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.

Finance Charge

The cost of credit over the life of the loan, expressed as a dollar amount. This includes not only interest, but any other charge which is required as a condition of receiving credit.

Fixed-Rate Mortgage

A loan on which the interest rate is set for the term of the loan.


A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt. Often times, late fees and attorney charges are added to this amount.

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A cash gift a buyer receives from a relative or other source. Lenders usually require a "gift letter" stating that the money will not have to be repaid.

Good-Faith Estimate

This document was discontinued in 2015 and has been replaced by the Loan Estimate.

Graduated Payment Mortgage (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Monthly Income

The total amount the borrower earns per month, before any expenses are deducted.


A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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Hazard Insurance

A property insurance policy that protects against loss resulting from physical damage to property due to hazards such as fire, flood and windstorm.

Home Equity Loan

A loan that allows owners to borrow against the equity in their homes. In most cases, these loans are a second trust line of credit or HELOC (Home Equity Line of Credit).

Home Inspection

An examination of a home's construction, condition and internal systems by an inspector or contractor prior to purchase.

Homeowner Association Fees

A fee charged by the homeowners association for maintaining the common elements of a subdivision, such as roads and common areas owned by the association plus the costs to run the association.

Home Warranty

A home warranty is an annual service plan that provides for the repair or replacement of covered systems and appliances in the home that break down due to normal wear and tear.

Homeowner's Insurance

An insurance policy which protects homeowners from financial losses related to the ownership of real property. In addition to covering losses due to vandalism, fire, hail, etc., most policies also provide theft and liability coverage. Flood related damage requires a separate flood insurance policy or rider.

HUD-1 Settlement Statement

A document that provides an itemized listing of the funds that are payable at closing.  This document was replaced in 2015 by the Closing Disclosure for the purchaser, but it is still used by settlement offices to calculate the closing fees and net proceeds due to the seller.

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A published interest rate used to determine future interest rate adjustments for ARM loans.

Interest-Only Loan

A loan that requires the payment of only the interest that accrues on the loan balance each month. Because each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.

Interest Rate

The percentage rate at which interest accrues on the mortgage. It is also the rate used to calculate the monthly payments.

Investment Property

Real estate that generates income, such as an apartment building or a rental house.

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Jumbo Mortgage

Conventional loan that exceeds conforming loan limits set by Fannie Mae and Freddie Mac. In high-cost areas of the country, these entitles have increased the size of mortgages they will purchase; in these areas, jumbo loans exceed the increased conforming high-balance limits.

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A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Life Cap

A limit on the amount that a loan rate can move during the term of the mortgage. For example, the rate on an adjustable-rate mortgage that begins at 5 percent and has a lifetime cap of 6 percentage points cannot rise above 11 percent, even if rates on fixed-rate mortgages soar to 20 percent.

Loan Closing

The final transfer of the ownership of a property from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

Loan Discount Points

See Discount Points.

Loan Origination Fee

The loan origination fee covers the administrative costs of processing the loan.

Loan-To-Value Ratio

The relationship between the amount of the mortgage loan and the lower of the appraised value or purchase price.


Locking an interest rate guarantees that it won’t change for a specific period of time.  The Lock-In period must be long enough to get you to your settlement date.

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Market Value

The price that a piece of property will likely sell for at a particular point in time.


A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker

A company that provides home loans using its own money. The loans are usually sold to investors such as insurance companies, Fannie Mae and Freddie Mac

Mortgage Broker

A company that matches lenders with prospective borrowers who meet the lender's criteria. The mortgage broker does not make the loan, but receives payment from the lender for services.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Loan Application

Lenders use the information you provide on the loan application to evaluate whether or not they can approve you for a loan and if so, the amount of money they can lend you.

Mortgage Payment

The monthly payment made to your lender that reduces the debt once a month. Your monthly mortgage payment includes four components. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.


The lender.


The borrower or homeowner.

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Negative Amortization

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Non-Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.


The legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

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Occupancy Date

The date in a residential real estate contract defining when the buyer may actually take possession and/or move in to the property, also referred to as possession date. It is highly suggested whenever possible that the occupancy date be the same date as the closing date.


When you make an offer on a house, it means you are making a formal bid to buy a home. You can work with your REALTOR® to put together a written bid that includes, for example, the address of the home, the sales price, the type of financing you will use to purchase the home, and a target date for closing and occupancy. An earnest money deposit typically accompanies the offer. Your REALTOR® can provide guidance on other elements of the offer.

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Personal Property

Any property that is not real property. An example of personal property is furniture. Often real property is distinguished between personal property if it is fixed or attached to the property.

PITI (Principal, Interest, Taxes, Insurance)

When a buyer applies for a loan, the lender will calculate the principal, interest, taxes and insurance. The figure is designed to represent the borrower's actual monthly mortgage-related expenses.


See Discount Points

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Pre-Approval Letter

A letter from a lender, supported by documentation provided by the buyer, that informs a seller about the qualifying ability of that buyer.


A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepaid interest

Interest paid before it is due. For example, at the close of a real estate transaction borrowers usually pay for the interest on their loan that falls between the closing date and the end of the month.

Prepayment Penalty

Money charged for an early repayment of debt.


Many lenders will prequalify a borrower who is shopping for a loan by completing a preliminary estimate of the buyer's ability to pay for a home.


The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)

A special type of loan insurance that many lenders require borrowers to purchase when the borrower's down payment is less than 20 percent of the home's purchase price.

Purchase and Sale Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

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Qualifying Ratios

Lenders compute qualifying ratios to determine how much a potential buyer can borrow.

Quit-Claim Deed

A document that releases a party from any interest in a piece of real estate.

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Ratified Contract

A contract signed by all parties, with any changes to the contract initialed by all parties. 


A real estate broker or associate holding active membership in a local real estate board affiliated with the National Association of REALTORS®. REALTORS adhere to the Code of Ethics, which is based on professionalism and protection of the public.

Real Estate Settlement Procedures Act (RESPA)

A federal law designed to make sellers and buyers aware of settlement fees and other transaction-related costs.


The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel the transaction after settlement.


Paying off an existing loan with the proceeds from a new loan using the same property as security. Usually done to lower the interest payment or take cash from the equity in the property.

Reverse Mortgage

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

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Sales Contract

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Schedule of Payments

The day of the month, number, and dollar amount of payments due over the entire course of the loan.


All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes and insurance.


See Closing.

Settlement Costs

See Closing Costs.

Shared-Equity Transaction

A transaction in which two buyers purchase a property, one as a resident co-owner and the other as an investor co-owner.


A measurement of land, prepared by a registered land surveyor, showing the property boundaries, its dimensions and the location and dimensions of any structures on that land. Easements across the property are also shown.

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A document that gives evidence of an individual's ownership of property.

Title Insurance

A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is paid by the purchaser and/or seller.

Title Search

An examination of municipal records to determine the legal ownership of property - usually performed by a title company.

Total of Payments

The total dollar cost of the loan to you, assuming all payments are made on time.

Truth in Lending Act (TILA)

The Truth in Lending Act is a United States federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement. There are five terms which are required to be disclosed: Finance Charge, Annual Percentage Rate (APR), Amount Financed, Schedule of Payments and Total of Payments.

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The decision whether to make a loan to a potential borrower based on credit, employment, assets, and other factors. An underwriter confirms the borrower has met the lender’s requirements for a loan.

USDA Rural Development

Provides mortgages for purchasers of rural properties.  Household income must meet certain guidelines.

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VA Loan

A long-term, low or no down-payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Funding Fee

A premium (depending on the size of the down payment) paid on a VA-backed mortgage. The Funding Fee is waived for Veterans collecting VA Disability.

Variable Rate Mortgage (VRM)

See Adjustable Rate Mortgage.

Verification of Deposit (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)

A document signed by the borrower's employer verifying dates, position and salary.

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