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.
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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.
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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.
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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.
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Gross Income
For qualifying purposes, the income of the borrower before taxes or other deductions.
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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).
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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.
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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.
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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.
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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).
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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 (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.
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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.
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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.
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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. |
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