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Adjustable
Rate
Interest rates that change periodically with the index they are
"Tied" to. Payments may increase or decrease
accordingly. |
Amortization
The method of repayment whereby, the amount you borrow is repaid
gradually though regular blended monthly payments of principal
and interest. The first few years of payments is mostly applied
toward the interest owed. In the final years of the loan,
payment amounts are applied mostly to the remaining principal. |
Annual
Membership
An amount that may be charged annually for having a line of
credit available. Often charged regardless of whether or not you
use the line. Also referred to as a "participation
fee." |
Annual
Percentage Rate (APR)
The cost of credit on a yearly basis, expressed as a percentage.
Required to be disclosed by the lender under the federal
"Truth in Lending Act", otherwise known as Regulation
Z. This includes up-front costs (pre-paid) to obtain the loan,
and therefore, is usually a higher rate than the interest rate
(note rate) in the mortgage Fee's not included are: title
insurance, appraisal, and credit report. |
Application
The initial statement of personal and financial information that
is required to start the process of approving your loan. |
Application
Fee
A Fee that is paid with the application. Application fee's may
include charges for property appraisal ($250-$300) and/or a
credit report ($50-60). |
Appraisal
The fee charged by an appraiser to give an opinion of market
value as of a specific date. This is a requirement of most
lenders to obtain the loan. |
Assumption
of Mortgage
An agreement of the purchaser to become primarily liable for the
mortgage loan. Unless otherwise "released" by the
lender, the seller may remain secondarily liable for payments. |
Cap
A maximum allowable increase, either for payment or interest
rate, for a pre-determined period of time on an Adjustable Rate
Mortgage. |
Cash
Out
To receive money back by refinancing your existing mortgage. |
Ceiling
A maximum allowable interest rate for the life of the loan on an
adjustable rate mortgage. |
Closing
Costs
Fees the borrower or seller pays at the closing of the mortgage
loan. This may include the origination fee, discount points,
attorney or escrow's fees, title insurance, survey, recording
fee, plus other items which must be "prepaid", such as
tax and hazard insurance impound amounts. |
Conforming
Loan
Normally, a mortgage loan under $227,150. Also, qualifying
"ratios" and underwriting methods are mostly
standardized. |
Contract
of Sale
An agreement between buyer and seller for the price, terms, and
conditions mutual to both parties to convey title to the buyer. |
Debt
Service
An amount of the total credit card, auto, mortgage or other debt
which you pay. |
Discount
Points (or Points)
An amount paid either to lower the interest rate charged. Each
point is equal to one percent (1%) of the loan amount (i.e.: two
points on a $100,000 mortgage would equal $2,000). |
Down
Payment
The difference between the purchase price and the part of the
purchase price being financed. Most lenders require the down
payment to be paid from the buyer's own "seasoned"
funds. Gifts from related parties are sometimes acceptable, but
must be disclosed to the lender. |
Due
on Sale
A clause in the mortgage agreement saying that, if the mortgagor
(the borrower) sells, transfers, or, some times, further
encumbers the property, the mortgagee (the lender) may demand
any outstanding balance to be paid in full. |
Effective
Interest Rate
Cost of credit on a yearly basis expressed as a percentage. It
includes any up-front costs paid to obtain the loan, and is,
usually a higher amount than the interest (note) rate in the
mortgage. This is useful when comparing loan programs with
different rates and points. |
Encumbrance
The claim on a property by another party which would normally
affect the ability to transfer ownership of the property. |
Equity
The difference between the fair market value (appraised value)
of the home and the outstanding mortgage balance. |
FHA
Loan
Better termed an "FHA Insured Loan." A loan which the
Federal Housing Administration has insured, against losses, the
lender which may incur a loss due to default. |
First
Mortgage
The mortgage which is the first lien on title, taking priority
over all other "junior" liens (which are Financial
encumbrances). |
Fixed
Rate
An interest rate that is fixed for the full term of the loan.
Payments are also fixed. |
Good
Faith Estimate
The written estimate of closing costs which lenders must provide
to you within three days of submitting an application. |
Grace
Period
The period of time which a loan payment may be paid after the
due date but still not incur a late penalty. Any late payments
may be reported on your credit report. |
Gross
Income
For qualifying purposes, the income of the borrower before taxes
or other deductions. |
HUD
I Settlement Statement
The form utilized at loan closing to itemize the costs
associated with purchasing or refinancing a home. Universally
used as mandated of HUD, the Department of Housing and Urban
Development. |
Hazard
Insurance
The contract between purchaser and an insurer, to compensate the
insured for the loss of property due to hazards (fire, hail
damage, etc.), for a premium (fee). |
Home
Equity Line of Credit
A loan giving you the ability to borrow funds at any time, and
in the amount you choose, up to your maximum credit limit. The
loan is secured by the equity in your home. Simple interest
(interest-only payments on outstanding balance) is normally tax
deductible. It's usually used for home improvements, major
purchases, and/or debt consolidation. |
Home
Equity Loan
A fixed or adjustable rate loan used for a many purposes, also
secured by the equity in the home. Interest paid is usually tax
deductible. Often used for home improvement or freeing of equity
for investment on other real estate or investments. Recommended
for replacing or substituting consumer loans whose interest is
not tax deductible, such as auto & boat loans, credit card
debt, medical debt, and education loans. |
Index
The number, normally a percentage, by which future interest
rates for Adjustable Rate Mortgages are based. Common indexes
include the "Cost of Funds" for the Eleventh Federal
District of banks or the average rate of a 1 year Government
Treasury Security. |
Interest
Rate
A periodic charge, expressed as a percentage, for use of credit. |
Jumbo
Loan
Mortgage loans over $227,150. Terms and underwriting
requirements may vary from conforming loans. |
Loan
to Value Ratio (LTV)
The ratio determined by dividing the sales or appraised value
into the loan amount, with the result expressed as a percentage.
Example, a sales price of $100,000 and a mortgage loan of
$90,000, the loan to value ratio would be 90%. Loans with LTV's
over 80% may require Private Mortgage Insurance (PMI). |
Lock
or Lock In
The commitment obtained from a lender assuring you a particular
interest rate and/or feature for a definite time period.
Provides protection against rising interest rates between the
time you apply for a loan, obtain loan approval, and, close the
loan thus receiving the funds you applied to borrow. |
Margin
The amount, normally a percentage, that is added to the index
which determines the rate for an Adjustable Rate Mortgage. |
Minimum
Payment
A minimum amount you must pay, usually monthly, on a home equity
loan or line of credit. With some programs, the minimum payment
may be "interest only," (simple interest). In other
programs, the minimum may include principal and interest
(amortized). |
Mortgage
Banker
Originates (initiates) mortgage loans, lends their funds and
closes the loan in their name. |
Mortgage
Broker
Like mortgage bankers, initiates the loan application and
processes the necessary paperwork. Unlike a mortgage banker,
brokers don't fund the loan with their own money, but usually
work as an "agent" on behalf of several investors,
like mortgage banker, S & L's, banks, or investment bankers. |
Mortgage
Insurance (MI or MIP or PMI)
Insurance purchased by borrowers to insure the lender or the
government against loss if you default. MIP, or Mortgage
Insurance Premium, is paid on government-insured loans (FHA or
VA loans) regardless of the LTV (loan-to-value). If you pay off
a government insured loan prior to maturity, then you may be
entitled to a refund of the MIP. Private Mortgage Insurance, (PMI)
is paid loans which are not government insured and when LTV is
greater than 80%. Once you have accumulated 20% of the
property's value as equity, the lender may waive PMI "at
your request". Please note that this insurance does not
involve any form of life insurance that pays off the loan in the
event of death. |
Mortgage
Loan
A loan which uses real estate as security / collateral to
provide for repayment if you default on the terms of the loan.
The Mortgage or Deed of Trust is the agreement pledging the
property as security. |
Mortgagee
The LENDER in a mortgage loan transaction. |
Mortgagor
The BORROWER in a mortgage loan transaction. |
Negative
Amortization
Amortization whereby the payment is insufficient to fund
complete repayment of the loan at its end of term. Often occurs
when an increase in the monthly payment is limited by a ceiling
or cap. The part of the payment which should be paid is added to
the remaining balance. Thus balance owed may increase, rather
than decrease over the life of the loan. |
PITI
Principal, Interest, Taxes and Insurance,(hazard) that comprise
the monthly payment. |
Points
An amount paid either to lower the interest rate charged. Each
point is equal to one percent (1%) of the loan amount (i.e., two
points on a $100,000 mortgage would equal $2,000). |
Prepayment
Penalty
The fee paid to a lending institution for paying off a loan
before its maturity date. |
Qualifying
Ratios
Comparisons of a borrower's debts and gross monthly income,
expressed as percentage. |
Right
to Rescission
The legal right to cancel a mortgage contract treating the
contract as if it never existed. The Right of Rescission does
not apply when purchasing a home or refinancing an investment
property, but is applicable to home loans, such as refinances
and home equity loans. |
Security
Interest
The interest a lender takes in the borrower's property to assure
repayment of the debt. See Mortgage and Deed of Trust above. |
Servicing
a Loan
An ongoing process of collecting the monthly mortgage payment,
which includes accounting for, and the payment of your yearly
tax and/or homeowners insurance. |
Title
Written evidence that proves the right of ownership of a
specific piece of property. |
Title
Insurance
Protection for Lenders or Homeowners against financial loss
resulting from Legal Defects on the title. |
Transaction
Fee
The fee which may be charged each time you draw on a home equity
credit line. |
Underwriting
The process of verifying data for the approval a loan. |
VA
Loan
Better termed a "VA Insured Loan." A loan which the
Veteran's Administration insures the lender against losses the
lender may incur due to default. Usually only available to
veterans holding a Certificate of Eligibility. |
Variable
Rate
The interest rate that changes periodically in relation to an
index. Payments may increase or decrease accordingly. |
