What is a mortgage / what does 'mortgage' mean?
The word "mortgage" comes from the French word "Mort" which means dead, and "Gage" from Old English which means "pledge". According to Sir Edward Coke, who lived from 1552 to 1634, the term came from the doubtfulness of whether or not a mortgagor would pay their debt. In those days, if the mortgagor did not, then the land pledged as security for the debt was taken away. The land was considered 'dead' to the mortgagor. The modern meaning of the term commonly refers to a loan for the purpose of purchasing a property. Home mortgages are the most common type of mortgage.

Accrued Interest:
Interest that is earned but not paid, but added to the amount owed.

Adjustable Rate:
An interest rate that changes periodically in relation to an index; payments may increase or decrease accordingly.

Adjustable Rate Mortgage (ARM):
A mortgage on which the interest rate, after an initial period, can be changed by the lender. While ARMs in many countries abroad allow rate changes at the lender's discretion ("discretionary ARMs"), in the US most ARMs base rate changes on a pre-selected interest rate index over which the lender has no control. These are "indexed ARMs". There is no discretion associated with rate changes on indexed ARMs.

Agreement of Sale:
A contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Alternative Documentation:
Expedited and simpler documentation requirements designed to speed up the loan approval process. Instead of verifying employment with the applicant's employer and bank deposits with the applicant's bank, the lender will accept paycheck stubs, W-2s, and the borrower's original bank statements. Alternative documentation remains “full documentation”, as opposed to the other documentation options.

Amortization:
Is a repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Membership:
An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Annual Percentage Rate (APR):
The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note.

Application:
An initial statement of personal and financial information which is required to approve your loan.

Application Fee:
Fees that are paid upon application. An application fee may frequently include charges for property appraisal and a credit report.

Appraisal:
A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Assumption:
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Unless the lender also agrees, the seller remains liable for the mortgage.

Assumption of Mortgage:
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.

Automated Underwriting:
A computer-driven process for approving the application for underwriting a loan. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower's credit history and the subject property.

Bad-Faith Estimate:
The practice of low-balling figures for settlement costs on the Good Faith Estimate to make them appear more attractive to potential mortgage shoppers.

Balloon mortgage:
A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is refinanced with the current or another lender. On a 7-year balloon loan, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the 7th year must be repaid or refinanced at that time. Balloon mortgages are similar to ARMs in that the borrower trades off a lower rate in the early years against the risk of a higher rate later. They are riskier than ARMs because there is no limit on the extent of a rate increase at the end of the balloon period.

Balloon Payment:
A lump sum payment for the unpaid balance of the loan

Bimonthly mortgage:
A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.

Biweekly mortgage:
A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Bridge loan:
A short-term loan, usually from a bank, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale. Unsecured bridge loans are available if the borrower has a firm contract to sell the existing house. Secured bridge loans are available without such a contract.

Buy-Down:
A permanent buy-down is the payment of points in exchange for a lower interest rate. A temporary buy-down concentrates the rate reduction in the early years.

Buy-up:
Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs.

Cap:
The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Cash Out:
Receiving money back when refinancing your present mortgage.

Ceiling:
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.