Glossary of Real Estate and
In lending, amortization is the distribution of payment into multiple cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest.
It is the time period over which the payments are calculated. It may not necessarily coincide with the maturity of the note. (For example, the note may be amortized over 30 years to lower the payment, but the balance becomes due and payable in 10 years. This is also known as a balloon.)
A ‘balloon payment mortgage’ is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size.
Bill of Sale
A written instrument given to pass title of personal property.
Extra expenses beyond the purchase price that are paid at closing. This can include a Mortgage Title Policy; Appraisal Fees; Filing Fees, and other fees.
Contract for Deed (or Land Contract)
An instrument used to sell a property with the owner carrying the note. Title is not conveyed to the purchaser until certain conditions in the contract have been made. The title is typically transferred at the time the note is paid in full. If you have made a sale on a contract for deed or land contract, you may or may not have a note to go along with it, since many times the repayment terms will be stated in that document.
Deed of Trust
The name used for a mortgage in some states (also see “Mortgage”).
Escrow (Also known as Escrowing)
The process of collecting the taxes and insurance along with the principal and interest of the scheduled payment for a property that has been purchased and that is subject to a loan. The person or company responsible for the escrow account deposits the tax and insurance portion of the payment into an account from which they will be paid when due.
See “Contract for Deed”
Mortgage (or Deed of Trust)
This instrument pledges the property as collateral for the Note. Some states use a Mortgage and some use a Deed of Trust. In either case, the use for the instrument is the same.
Mortgagee’s Title Policy
An insurance policy we purchase that ensures the bank has a valid lien upon the real estate. At the initial sale transaction, an owner’s title policy may have been purchased to ensure the home buyer’s position in title.
Note (also called a Promissory Note)
This is the instrument that states the terms of repayment of a real estate loan. Typically, the terms of the repayment consist of the borrower’s name, the time period over which payments are made, interest rate charged, initial loan balance, payment amount, place of payment, and the maturity of the loan.
The amount of money owed to the lender (not including interest).
The right of ownership of a property.
This is the instrument that conveys title to the property being purchased. With this instrument, the seller gives a warranty that there is a clear title to the property.