Agreement of Purchase and Sale
The legal contract a buyer and a seller enter into when purchasing a home. We recommend that your offer be prepared by a professional real estate agent who has the knowledge and experience to include the most suitable clauses and conditions to protect you.
Amortization Period
The number of years it takes to repay the entire amount of the loan based on a set schedule of
payments (commonly 15 or 30 years).
Appraisal
An independent assessment of the market value of a property, typically required by the lender.
Assets
What you own or can call upon (cash, savings, investments, property). Used in determining net worth or when securing financing.
Assumption Agreement
A legal document signed by a buyer that requires the buyer to assume responsibility for the
obligations of an existing mortgage. If someone assumes your mortgage, be sure to get a
release from the lender so you are no longer liable for the debt.
Blended Payments
Equal payments consisting of both principal and interest. While the payment amount stays the
same, the portion applied to principal gradually increases while the interest portion decreases.
Closed Mortgage
A mortgage that cannot be prepaid or renegotiated before maturity without penalty.
Closing Date
The date ownership of the property is legally transferred from the seller to the buyer and the
sale becomes final.
Collateral
Assets pledged to secure a loan, such as a vehicle, savings account, or real estate.
Conventional Mortgage
A mortgage where the down payment is at least 20% of the purchase price or appraised value.
Loans with less than 20% down typically require mortgage insurance.
Credit Scoring
A system lenders use to evaluate a borrower’s creditworthiness based on credit history, debt
levels, and payment patterns.
Demand Loan
A loan where the balance must be repaid in full whenever the lender requests
Deposit
An amount paid by the buyer at the time an offer is made to show good faith. The deposit is
applied toward the down payment at closing.
Equity
The difference between the market value of a property and the total outstanding mortgage
balance.
First Mortgage
A mortgage with an interest rate that remains the same for the entire term of the loan.
Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.
Gross Debt Service Ratio (GDS)
A calculation lenders use to assess a borrower’s ability to repay. It compares the borrower’s
housing costs (mortgage, property taxes, insurance, HOA dues) to their gross monthly income.
Generally, lenders look for a ratio of 28–31% or less.
Guarantor
A person with established credit and income who agrees to be responsible for a loan if the
borrower does not pay.
High-Ratio Mortgage
A loan with a down payment of less than 20% of the purchase price or appraised value.
Mortgage insurance is required.
Home Equity Line of Credit
A revolving line of credit secured against the borrower’s home, typically up to a percentage of
the property’s appraised value.
Interest Adjustment Date (IAD)
The date your mortgage officially begins. Interest covering the period between the closing date
and the first regular payment is usually collected at closing.
Interest-Only Mortgage
A mortgage where the borrower pays only interest for a set period. The loan balance (principal)
does not decrease during that time.
Mortgage
A loan that uses real estate as collateral. Once the loan is repaid in full, the lender provides a
release of lien.
Mortgagee
The lender providing the loan
Mortgagor
The borrower who takes out the loan.
Open Mortgage
A mortgage that can be repaid in part or in full at any time without penalty. Typically has a
higher interest rate than a closed mortgage.
P.I.T.
An acronym for Principal, Interest, and Taxes — the key components of most monthly mortgage
payments. Insurance is often included as well (PITI).
Portable Mortgage
A mortgage that allows you to transfer the balance, rate, and terms to a new property if you
move.
Prepayment Penalty
A fee charged by the lender if the borrower pays off the loan early or makes extra payments
beyond what is allowed by the loan terms.
Prime
The benchmark interest rate commercial banks charge their most creditworthy customers.
Many variable loan rates are tied to prime.
Principal
The original amount of money borrowed, not including interest.
Rate Lock (Rate Commitment)
The number of days a lender guarantees an interest rate once you’ve been approved, typically
30–90 days.
Refinance
Replacing an existing mortgage with a new one, often to take advantage of lower rates, change
loan terms, consolidate debt, or access home equity.
Renewal
When your mortgage term ends, you may renew with the same lender or transfer to another
lender with new terms.
Second Mortgage
A loan secured by a property in addition to the first mortgage. It has a secondary claim on the
property.
Switch
Moving your mortgage from one lender to another, often to obtain better terms.
Term
The length of time your mortgage agreement is in effect (commonly 10, 15, 20, or 30 years).
Total Debt Service (TDS) Ratio
A calculation that compares all of a borrower’s monthly debt obligations — including housing
costs, car loans, credit cards, and other debt — to gross monthly income. Generally, lenders
prefer a ratio of 36–43% or less.
Variable-Rate Mortgage (ARM)
A mortgage where the interest rate can change periodically based on movements in a
benchmark rate such as the prime rate or SOFR.
