ABC of Mortgage and Mortgage related terms

A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

Borrowing for investment purposes

Aside from the absence of large amount of available money, there are several reasons why an investor (including a buyer of real estate) might borrow funds. Some of these include:

* To diversify investments and reduce overall risk by using only part of the available funds for any one investment. However the mortgage loan enables him to purchase more assets than he would otherwise been able to, and therefore in general increases investment risk rather than reducing it.

* To invest the borrowed funds at a higher rate of interest (yield) than the borrowing rate; for example, a sum is borrowed at an annual interest rate of 7% per year and used to invest in a project that returns 10% per year. This is likely to be speculative and there is usually a possibility that the project may turn out to return less than 7% per year or to lose money.

* To free up equity for other purposes; for example, a commercial enterprise may prefer to use funds to purchase inventory or equipment instead of investing only in land and buildings.

* To obtain a tax benefit. In some countries (such as Canada), mortgage interest is not tax deductible, but loans made for investment purposes are.

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Mortgage Glossary

Amortization	Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.
Annual Percentage Rate (APR)	The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.
Application Fee	That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.
Appraisal	A report made by a qualified person as to the value of a property as of a given date.
Assessed Value	The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.
Assumption of Mortgage	The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
Alcove	A recessed section of a room, such as a breakfast nook.
Alienation clause	A provision that requires the borrower to pay the balance of the loan in a lump sum after the property is sold or transferred.
Alkali	Mineral salt found in soil.
Alkaline soil	Soil that contains a higher concentration of mineral salt than natural acid.
Alley	A lane behind a row of buildings or between two rows of buildings.
Allowances	Budgets offered by builders of new homes for the purchase of carpeting and fixtures.
Alternative mortgage	Any home loan that does not conform to a standard fixed-rate mortgage.
Aluminum siding	A metal covering that provides an alternative to paint for owners of wood homes.
Aluminum-clad windows	Wooden windows with aluminum covering the exterior.
Amenities	Parks, swimming pools, health-club facilities, party rooms, bike paths, community centers and other enticements offered by builders of planned developments.
American Society of Home Inspectors	The American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744.
Americans with Disabilities Act	A law passed in 1990 that outlaws discrimination against a person with a disability in housing, public accommodations, employment, government services, transportation and telecommunications.
Amortization	The process of paying the principal and interest on a loan through regularly scheduled installments.
Amortization tables	Mathematical tables that lenders use to calculate a borrower's monthly payment.
Amperage	The strength of an electrical current.
Anchor bolt	A large steel bolt anchored in concrete and attached to a building to prevent the structure from moving.
Annual	Something that happens once a year.
Annual Percentage Rate (APR)	The cost of the loan expressed as a yearly rate on the balance of the loan.
Annual mortgagor statement	A yearly statement to borrowers that details the remaining principal and amounts paid for taxes and interest.
Annuity	The payment of a fixed sum to an investor at regular intervals.
Anticipatory breach	A communication that informs a party that the obligations of the original contract will not be fulfilled.
Application	A document that details a potential borrower's income, debt and other obligations to determine credit worthiness.
Application fee	The fee that a lender charges to process a loan application.
Appraisal	An opinion of the value of a property at a given point in time.
Appraisal fee	The fee that an appraiser charges to estimate the market value of the property.
Appraisal report	A detailed written report on the value of a property based on recent sales of comparable sites in the area.
Appraised value	An opinion of the current market value of a property.
Appreciation	An increase in the value of a home or other property..
Arbitration	A method of resolving a dispute in which a third party renders a decision.
Arbor	An area shaded by trees, shrubs or vines on a latticework structure.
Arch	A curved structure that supports weight over an area, such as a doorway.
Architect	A licensed professional who designs homes, buildings and other structures.
Architectural fees	The fee an architect charges for services. In general, architects charge for their services by the hour, by the square foot, or by a percentage of the project budget.
Arpent	A French measurement of land equal to .84625 acres.
As-is condition	The purchase or sale of a property in its existing condition.
Asbestos	A fire-resistant mineral used for insulation and home products that has been found to pose a health hazard.
Asking price	A seller's initial price for a property.
Assessed value	A tax assessor's determination of the value of a home in order to calculate a tax base.
Assessment	The estimated value of a piece of real estate or a levy placed on property in addition to taxes.
Assessment rolls	A list of taxable property compiled by the assessor.
Assets	Items of value which include cash, real estate, securities and investments.