Glossary of Mortgage Terms

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cap

A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap.

A payment cap is a limit on the monthly payment.

An interest cap is a limit on the amount of the interest rate.

A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan.

An annual cap limits the amount the interest rate can increase over a twelve-month period.

certificate of reasonable value (CRV)

A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

certificate of title

Document rendering an opinion on the status of a property's title based on public records.

closed-end mortgage

A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.

closing costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:

cloud

A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.

co-mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

co-signer

One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.

collateral

Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan.

commitment fee

A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.

condominium

An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

conforming loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.

construction loan

A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

consumer handbook on adjustable rate mortgages (C.H.A.R.M.)

A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

conventional loan

A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

convertible mortgage

An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

covenants

Rules and restrictions governing the use of property.

CRV

See: certificate of reasonable value.

curtailments

The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.