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Mortgage Terms Glossary

Mortgage Terms - K thru N

Late Charge The penalty a borrower must pay when a payment is made a stated number of days after the due date.

Lease-Purchase Mortgage Loan An alternative financing option that allows low and moderate income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.

Liabilities A person's financial obligations. Liabilities include long term and short term debt.

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

Lifetime Payment Cap For an adjustable rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap For an adjustable rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

Loan A sum of borrowed money (principal) that is generally repaid with interest.

Loan to Value Ratio The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock A lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.

Margin The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Maturity The date on which the principal balance of a loan becomes due and payable.

MIP (Mortgage Insurance Premium) Insurance from FHA to the lender against incurring a loss on account of the borrower's default.

Monthly Fixed Installment The portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

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

Mortgage Banker A company that originates mortgages for resale in the secondary mortgage market.

Mortgage Broker An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgagee The lender.

Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Mortgage Life Insurance A type of term life insurance. In the event that the borrower dies while the policy is in force, the mortgage debt is automatically paid by insurance proceeds.

Mortgagor The borrower or homeowner.

Negative Amortization 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 home buyer ends up owing more than the original amount of the loan.

Net Effective Income The borrower's gross income minus federal income tax.

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

Note A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.