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| Acceleration Clause |
Allows the lender to demand immediate payment
of the balance of the loan in the event the borrower defaults on
payments. |
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| Adjustable Rate Mortgage (ARM) |
A mortgage in which the interest rate changes
periodically based on a pre-selected financial index. Most ARMs
have caps on how much an interest rate may increase. Also known
as variable rate mortgage. |
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| Adjustment Interval |
The time between changes in the
interest rate and/or monthly payment in an adjustable rate
mortgage. |
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| Amortization |
The repayment of a mortgage loan by
equal periodic payments to cover the principal and interest. |
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| Annual Percentage Rate
(APR) |
A yearly rate of interest that
includes fees and costs paid to acquire the loan. This rate may
be higher than the stated note rate on the mortgage because it
takes into account points and other credit costs. The APR allows
borrowers to compare different types of mortgages based on the
annual cost for each loan. |
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| Appraisal |
A written estimate of the property
value prepared by a qualified professional called an
"appraiser." |
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| Balloon Mortgage |
A mortgage with level monthly
payments for a set period of time and one final lump sum payment
at the end of a specified term. |
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| Broker |
A person or corporation who assists
in negotiating loans for clients, but does not personally lend
the money. |
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| Cap |
A provision of an adjustable rate
mortgage (ARM) that limits how much the interest rate or
mortgage payments may increase or decrease. |
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| Closing Costs |
Expenses incurred by buyers and
sellers when transferring ownership of property. Closing costs
typically include fees for appraisal, title, insurance,
recording, credit report, underwriting, processing and documents
preparation. |
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| Commitment |
An agreement, often written, in
which a lender promises to lend money on certain terms for a
specified period. |
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| Conventional Loan |
A loan not insured or guaranteed by
a government agency, such as the FHA, VA or Farmers Home
Administration. |
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| Deed of Trust |
A document used in many states
instead of a mortgage; title is conveyed to a trustee. |
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| Discount Points |
A sum a borrower pays to a lender
to decrease the interest rate of a mortgage. A point equals one
percent of the loan amount. |
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| Due on Sale Clause |
A condition of a mortgage or deed
of trust that states the loan must be paid when the property is
sold. |
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| Earnest Money |
Money given by a buyer to the
seller when making a formal offer to bind a transaction. Also
called a deposit. |
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| Equity |
The difference between the homes
fair market value and the unpaid principal balance of the
mortgage and any liens. Equity increases as the mortgage is paid
down and the property appreciates in value. |
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| Escrow |
An account in which a neutral third
party holds the documents and money in a real-estate transfer
until all conditions of sale are met. Escrow may also refer to
an account held by the lender into which the borrower pays for
tax or insurance payments. |
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FNMA - Federal National
Mortgage
Association (or Fannie Mae) |
A tax-paying corporation created by
Congress that purchases and sells conventional residential
mortgages and those insured by FHA or guaranteed by VA. This
institution makes mortgage money more available and more
affordable. |
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| Fixed Rate Mortgage |
A home loan in which the interest
rate remains constant for the life of the loan. |
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| Gross Monthly Income |
The total amount the borrower(s)
earns each month, before any taxes or deductions. |
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| Hazard Insurance |
Insurance coverage that compensates
for physical damage to property from natural disasters, such as
fire, windstorm or other hazards. |
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| Index |
The rate against which lenders
measure the difference between the current rate on adjustable
rate loans and that earned by other investments (U.S. Treasury
security yields, monthly average interest rate on loans closed
by savings and loans, and monthly average costs-of-funds
incurred by savings and loans), used to adjust the interest rate
up or down. |
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| Jumbo Loan |
A loan that is larger than the
limits ($359,650) set by FNMA and FHLMC. Because jumbo loans
cannot be funded by these agencies, they usually carry a higher
interest rate. |
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| Lien |
A claim against a property for the
payment of a debt. A mortgage is a lien; other types of liens a
property might have include a tax lien for overdue taxes or a
mechanics lien for unpaid debt to a subcontractor. |
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| Margin |
The amount, expressed as a
percentage, that a lender adds to the index on an adjustable
rate loan to establish the adjusted interest rate. For example,
if the index is 4 percent and the margin 2.75 percent, the final
interest rate is 6.75 percent. |
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| Market Value |
The highest price that a buyer
would pay and the lowest price a seller would accept on a
property. Market value may differ from the price a property
sells for. |
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| Mortgage Insurance |
The amount paid by the borrower to
insure the mortgage when the down payment is less than 20
percent. Mortgage insurance is also known as MI or PMI (private
mortgage insurance). |
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| Negative Amortization |
Occurs when a borrower's monthly
payments are not large enough to pay all the interest due on the
loan. This shortfall is added to the remaining loan balance to
create "negative" amortization. |
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| Net Effective Income |
The borrower's gross income minus
federal income tax. |
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| Non-Assumption Clause |
A provision of a home loan that
prohibits the transfer of a mortgage to another borrower without
the lender's permission. |
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| Origination Fee |
The fee a lender charges to process
a loan. This fee is usually computed as a percentage of the face
value of the loan and includes the cost to prepare loan
documents, check a borrower's credit history, inspect the
property, etc. |
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| PITI |
Acronym for the components of a
mortgage payment: principal, interest, taxes, and insurance.
|
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| Points (Loan Discount
Points) |
Prepaid interest assessed at
closing by the lender. A point equals one percent of the loan
amount. |
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| Principal |
The amount of money owed on a loan,
not including interest. |
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| Private Mortgage Insurance
(PMI) |
A policy that protects the lender
by reducing their exposure on a house if the borrower stops
paying the loan. The borrower pays the fees monthly. PMI is
usually required if the loan is greater than 80% of the lesser
of the appraised value or purchase price. |
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| Recision |
A law giving the borrower three
days after signing to cancel a contract in some cases, if the
transaction uses home equity as security. |
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| Recording Fees |
A fee paid to the county for
recording a mortgage or deed and making it part of the public
records. |
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| Servicing |
The steps and operations a lender
performs to keep a loan in good standing including the
collection of payments, payment of taxes, insurance, and
property inspections. |
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| Survey |
A precise measurement of land
showing its border location in relation to known points and
dimensions. |
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| Underwriting |
The process by which the lender
decides whether to loan money based on credit, employment,
assets, and other factors and matching this risk to an
appropriate rate, term and loan amount. |
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| Variable Rate Mortgage (VRM) |
A mortgage in which the interest
rate changes periodically based on a pre-selected financial
index. Most ARMs have caps on how much an interest rate may
increase. Also known as adjustable rate mortgage. |
