A-F | G-L | M-R | S-Z
Adjustable Rate--An
interest rate that changes periodically in relation to an index. Payments may increase
or decrease accordingly.
Amortization--A
repayment method in which the amount you borrow is repaid gradually though regular
monthly payments of principal and interest. During the first few years, most of each
payment is applied toward the interest owed. During the final years of the loan, payment
amounts are applied almost exclusively 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, Regulation Z. Includes up-front
costs paid to obtain the loan, and is, therefore, usually a higher amount than the
interest rate stipulated in the mortgage note. Does not include title insurance, appraisal,
and credit report.
Application--An
initial statement of personal and financial information which is required to approve
your loan.
Application Fee--Fees
that are paid upon application. An application fee may frequently include charges
for property appraisal ($200-$400) and a credit report ($30-50).
Appraisal--A
fee charged by an appraiser to render an opinion of market value as of a specific
date. Required by most lenders to obtain a loan.
Assumption of Mortgage--The
agreement of a purchaser to become primarily liable for the payments on a mortgage
loan. Unless otherwise specified by the lender, the seller may remain secondarily
liable for payments.
Balloon Payment--A
lump sum payment for the unpaid balance of the loan.
Cap--The
maximum allowable increase, for either payment or interest rate, for a specified amount
of time on an adjustable rate mortgage.
Cash Out--Receiving
money back when refinancing your present mortgage.
Ceiling--The
maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.
Closing Costs--Any
fees paid by the borrowers or sellers during the closing of the mortgage loan. This
normally includes an origination fee, discount points, attorney's fees, title insurance,
survey, and any items which must be prepaid, such as taxes and insurance escrow payments.
Conforming Loan--Generally,
a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized
to a large degree.
Contract of Sale--The
agreement between the buyer and seller on the purchase price, terms, and conditions
necessary to both parties to convey the title to the buyer.
Credit Limit--The
maximum amount that you can borrow under a home equity plan.
Debt Service--The
total amount of credit card, auto, mortgage or other debt upon which you must pay.
Deed of Trust--Used
in many western states, the agreement used to pledge your home or other real estate
as security for a loan. Similar to a mortgage.
Discount Points (or Points)--The
amount paid either to maintain or 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 that portion of the purchase price being
financed. Most lenders require the down payment to be paid from the buyer's own funds.
Gifts from related parties are sometimes acceptable, and must be disclosed to the
lender.
Due on Sale--A
clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells,
transfers, or, in some instances, encumbers the property, the mortgagee (the lender)
has the right to demand the outstanding balance in full.
Effective Interest Rate--The
cost of credit on a yearly basis expressed as a percentage. Includes up-front costs
paid to obtain the loan, and is, therefore, usually a higher amount than the interest
rate stipulated in the mortgage note. Useful in comparing loan programs with different
rates and points.
Encumbrance--A
claim against a property by another party which usually affects the ability to transfer
ownership of the property.
Equity--The
difference between the fair market value (appraised value) of your home and your outstanding
mortgage balance.
First Mortgage--A
mortgage which is in first lien position, taking priority over all other liens (which
are financial encumbrances).
Fixed Rate--An
interest rate which is fixed for the term of the loan. Payments as well are fixed
at one amount.
FHA Loan--More
appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration
insures the lender against losses the lender may incur due to your default.
Good Faith Estimate--A
written estimate of closing costs which a lender must provide you within three days
of submitting an application.
Grace Period--A
period of time during which a loan payment may be paid after its due date but not
incur a late penalty. Such late payments may be reported on your credit report.
Gross Income--For
qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Home Equity Line of Credit--A
loan providing you with the ability to borrow funds at the time and in the amount
you choose, up to a maximum credit limit for which you have qualified. Repayment is
secured by the equity in your home. Simple interest (interest-only payments on the
outstanding balance) is usually tax-deductible. Often used for home improvements,
major purchases or expenses, and debt consolidation.
Home Equity Loan--A
fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity
in your home. Interest paid is usually tax -deductible. Often used for home improvement
or freeing of equity for investment in other real estate or investment. Recommended
by many to replace or substitute for consumer loans whose interest is not tax-deductible,
such as auto or boat loans, credit card debt, medical debt, and education loans.
Hazard Insurance--A
contract between purchaser and an insurer, to compensate the insured for loss of property
due to hazards (fire, hail damage, etc.), for a premium.
HUD I Settlement Statement--A
form utilized at loan closing to itemize the costs associated with purchasing the
home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
Index--A
number, usually a percentage, upon 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 one year Government Treasury Security.
Interest Rate--The
periodic charge, expressed as a percentage, for use of credit.
Jumbo Loan--Mortgage
loans over $203,150. Terms and underwriting requirements may vary from conforming
loans.
Loan to Value Ratio (LTV)--A
ratio determined by dividing the sales price or appraised value into the loan amount,
expressed as a percentage. For example, with a sales price of $100,000 and a mortgage
loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80%
may require Private Mortgage Insurance, defined below.
Lock or Lock In--A
commitment you obtain from a lender assuring you a particular interest rate or feature
for a definite time period. Provides protection should interest rates rise between
the time you apply for a loan, acquire loan approval, and, subsequently, close the
loan and receive the funds you have borrowed.
Margin--An
amount, usually a percentage, which is added to the index to determine the interest
rate for adjustable rate mortgages.
Minimum Payment--The
minimum amount that you must pay, usually monthly, on a home equity loan or line of
credit. In some plans, the minimum payment may be "interest only," (simple interest).
In other plans, the minimum payment may include principal and interest (amortized).
Mortgage Banker--Originates
mortgage loans, loaning you their funds and closing the loan in their name.
Mortgage Broker--As
do mortgage bankers, takes loan application and processes the necessary paperwork.
Unlike a mortgage banker, brokers do not fund the loan with their own money, but work
on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment
bankers.
Mortgage Insurance (MIP or PMI)--Insurance
purchased by the borrower to insure the lender or the government against loss should
you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans
(FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured
loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or
Private Mortgage Insurance, is paid on those loans which are not government-insured
and whose LTV is greater than 80%. When you have accumulated 20% of your home's value
as equity, your lender may waive PMI at your request. Please note that such insurance
does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Loan--A
loan which utilizes real estate as security or collateral to provide for repayment
should you default on the terms of your loan. The mortgage or Deed of Trust is your
agreement to pledge your home or other real estate as security.
Mortgagee--The
lender in a mortgage loan transaction.
Mortgagor--The
borrower in a mortgage loan transaction.
Negative Amortization--Amortization
in which the payment made is insufficient to fund complete repayment of the loan at
its termination. Usually occurs when the increase in the monthly payment is limited
by a ceiling. The portion of the payment which should be paid is added to the remaining
balance owed. The balance owed may increase, rather than decrease over the life of
the loan.
PITI--Principal,
interest, taxes and insurance, which comprise your monthly mortgage payment.
Points--The
amount paid either to maintain or 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--A
fee paid to the lending institution for paying a loan prior to the scheduled maturity
date.
Qualifying Ratios--Comparisons
of a borrower's debts and gross monthly income.
Right to Rescission--The
legal right to void or cancel your mortgage contract in such a way as to treat the
contract as if it never existed. Right of rescission is not applicable to mortgages
made to purchase a home, but may be applicable to other mortgages, such as home equity
loans.
Security Interest--An
interest that a lender takes in the borrower's property to assure repayment of a debt.
Servicing a Loan--The
ongoing process of collecting your monthly mortgage payment, including accounting
for and payment of your yearly tax and/or homeowners insurance bills.
Title--The
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 in the
title.
Transaction Fee--A
fee which may be charged each time you draw on a home equity credit line.
Underwriting--The
process of verifying data and approving a loan.
Variable Rate--An
interest rate that changes periodically in relation to an index. Payments may increase
or decrease accordingly.
VA Loan--More
appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration
insures the lender against losses the lender may incur due to your default. Available
only to veterans possessing a Certificate of Eligibility