MORTGAGE DICTIONARY A | B | C | D | E | F | G | H | I | J | K | L | M N | O | P | Q | R | S | T | U | V | W | X | Y | Z

 

ADJUSTABLE-RATE MORTGAGE (ARM) A home loan with an interest rate and payment that changes during the life of the loan at scheduled intervals.

AMORTIZATION The gradual repayment of a mortgage through monthly installment payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, most of the payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan's principal balance.

ANNUAL PERCENTAGE RATE (APR) The total annualized cost of your loan expressed as a percentage. The APR includes finance charges such as loan points and fees as well as the interest rate of the note.

APPRAISAL An opinion of the market value of a home expressed by a licensed real estate appraiser.

APPRECIATION The increase in the value of a property.

ASSESSED VALUE The valuation placed upon a property by the county tax assessor for the purposes of taxation.

ASSUMABILITY The ability to transfer a loan from the seller to a buyer. Taking over an existing loan will generally require that the lender approve the buyer.

BUYDOWNS:

LENDER-SUSIDIZED BUYDOWN A mortgage for which the Lender pays for reduced rate for a fixed period of time in exchange for the borrower agreeing to pay a higher note rate for the term of the loan. (i.e. 2-1 buydown - lower rate for two years in exchange for higher rate for remaining twenty-eight years)

PERMANENT BUYDOWN A mortgage for which the buyer pays discount points in order to reduce the interest rate for the term of the loan.

SELLER/BORROWER BUYDOWN Mortgage for which payments are reduced for a fixed period of time because funds are paid at closing to subsidize monthly payments for the buydown period. (i.e. 2-1 seller subsidized buydown - seller pays lump sum on behalf of buyer to lower rate for first two years of mortgage)

TEMPORARY BUYDOWN A mortgage for which discount points are paid so that the interest will be reduced for one, two, three or four years.

CAL PERS see PERS

CAPS (PAYMENT CAPS) Provision of an ARM limiting how much the payment can increase or decrease at each adjustment period. Life cap is the highest rate of interest allowed at any time during the term of your loan.

CASH OUT REFINANCE Loan which replaces existing mortgage and closing costs plus gives borrower cash in hand at loan closing.

CLOSING COSTS Expenses in addition to the downpayment incurred by buyers when a home is purchased. Common closing costs include escrow fees, title insurance, document recording and loan points and fees. Sometimes the seller/buyer will pay a portion of the fees as a concession. For more info about closing costs:

CONDOMINIUM A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in the common areas of a multi-unit project.

CONVENTIONAL MORTGAGE A loan not guaranteed, insured or made by federal or state government.

CONVERSION OPTION The feature of an adjustable rate mortgage that gives the borrower the right to change to a fixed rate mortgage under specific conditions. Not all ARM's are convertible.

CONTINGENCY A condition that must be met before a contract can be completed.

CREDIT REPORT A report provided by the credit bureau and used by the lender to evaluate how the borrower has handled other credit transactions. A credit report is a history of credit transactions supplied to the credit bureaus from past creditors.

DEBT-TO-INCOME RATIO (DEBT RATIO OR DTI) The ratio of monthly debt to gross income. Lenders use this computation to determine if the borrower has sufficient income to repay the proposed house payments in addition to his or her current monthly obligations.

DEED A Grant Deed is a document transferring ownership of a property from the seller to the buyer (see Deed of Trust). A Trust Deed is a document evidencing a real estate loan (a security interest).

DOWN PAYMENT The portion of the home's purchase price the buyer pays in cash. Usually these funds represent the buyers' savings, but in special circumstances, these funds can be gifts, grants or loans. There are some mortgage loans which require NO down payment.

DUE-ON-SALE CLAUSE A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property.

EARNEST MONEY A deposit given to the seller or escrow to show that a prospective buyer is serious about buying the property. Also called a good faith deposit.

EASEMENT A right of way giving access to a property to another person or entity other than the owners. A common example is a utility easement, which gives the power company the power to put power lines and poles over properties to provide electricity.

ECOA A federal law which prohibits lenders from denying mortgages on the basis of race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

EQUITY The difference between the market value of a property and the homeowner's outstanding mortgage balance.

EQUITY LINE A line of credit usually secured as a second trust deed which functions similar to a credit card. When you use the available funds, you can expect to make a payment on the amount owing. When the balance is paid off, no payment is required. Unlike an installment loan, the line of credit is not closed when it is repaid…it can be used over and over like a credit card. The advantage is that because it is secured by real estate equity, the equity line offers a tax deduction as mortgage interest; whereas interest on a credit card provides no tax deduction.

ESCROW The escrow company's responsibility is to hold documents and money as a neutral third party and make sure all the terms of the escrow contract are complied with. In addition to fees for the escrow service, escrow may charge for notary fees, messenger fees and document preparation fees specific to the transaction.

FAIR CREDIT REPORTING ACT A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

FANNIE MAE (FEDERAL NATIONAL MORTGAGE ASSOCIATION) A government sponsored, privately owned entity which purchases mortgages from lenders and turns the mortgages into securities. Fannie Mae is one of the key secondary mortgage market agencies.

FHA LOAN A mortgage insured by the Federal Housing Administration.

FIRST MORTGAGE The mortgage that has first claim in the event of a default.

5/1 ARM A thirty year loan which is fixed for the first five years. After this period the loan becomes a one-year adjustable for the remaining twenty-five years.

FIXED RATE MORTGAGE A fixed rate mortgage is a loan in which the monthly principal and interest payments remain the same throughout the life of the loan. The terms of the mortgage can be anywhere from 5 to 40 years. The most common mortgage terms are 30 and 15 years. With a 30-year fixed rate mortgage your monthly payments are lower than they would be on a 15 year fixed rate, but the 15 year loan allows you to repay your loan twice as fast and save more than half the total interest costs.

FLOOD INSURANCE Insurance required for properties in federally designated flood areas.

FOREBEARANCE The lender's postponement of foreclosure to give a borrower time to catch up on overdue payments.

FORECLOSURE The process by which a mortgaged property may be sold when a mortgage is in default.

FREDDIE MAC (FEDERAL HOME LOAN MORTGAGE CORPORATION) A government sponsored, privately owned entity which purchases mortgages from lenders and turns the mortgages into securities which are bought by investors. Fannie Mae and Freddie Mac are the key secondary mortgage market agencies.

GPM (GRADUATED PAYMENT MORTGAGE) A mortgage that starts with low monthly payments and increase the predetermined intervals and predetermined rates.

GOOD FAITH ESTIMATE (GFE) A written form provided to loan customers with the details of the proposed loan including rate, term, type of loan and the costs associated with obtaining the loan.

HAZARD INSURANCE Insurance that protects the homeowner and lender against damage to home or property due to fire, wind, vandalism or other hazards.

HOME OWNER'S WARANTY A type of insurance that covers repairs to specified parts of the house for a specific period of time.

IMPOUND ACCOUNT An account established by a lender to collect a borrower's property tax and insurance payments. Impound accounts are normally required on mortgages with down payments less than 20%.

INTEREST The fee or rent charged by the lender for borrowing money.

INTEREST RATE CAP Provision of an ARM limiting the maximum increase in the interest rate at set intervals of time.

INTERIM ADJUSTABLES A mortgage which offers a reduced fixed rate for a predetermined interval. At the end of the fixed rate period, the mortgage becomes an adjustable. i.e. 10/1, 7/1, 5/1, and 3.1 ARMS.

JOINT TENANCY A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

LATE CHARGE The penalty a borrower must pay when a payment is made after the due date.

LIEN A legal claim against a property that must be paid when the property is sold.

LIFETIME CAP A provision of an ARM that determines the maximum interest rate that can be charged over the life of the loan.

LOAN SERVICING The collection of mortgage payments from borrowers and related responsibilities of a loan servicer, such as foreclosure, tax and insurance escrow, etc.

LOAN-TO-VALUE RATIO (LTV) The loan amount divided by the value of the house.

LOCK-IN A written agreement guaranteeing the home buyer a specified interest rate provided the loan closes with that buyer within a set period of time. The lock-in also usually specifies the number of points to be paid at closing as well.

MARGIN The set percentage the lender adds to the index rate to determine the current interest rate of an ARM.

MORTGAGE A legal document that pledges a property to the lender as security for payment of a debt, usually a loan on the house itself.

MORTGAGE BANKER A company that originates mortgages exclusively for resale in the secondary market (such as to GNMA, FNMA and FHMLC).

MORTGAGE BROKER A company that originates loans and places them with a wide variety of lenders for funding and servicing.

MORTGAGE INSURANCE See "Private Mortgage Insurance".

MORTGAGE INSURANCE PREMIUM (MIP) The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

MORTGAGE INTEREST DEDUCTION The ability of mortgage borrowers to deduct the interest paid on a home loan for purposes of federal and state income taxes.

MORTGAGE NOTE A legal document obliging a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a Deed of Trust.

MORTGAGEE The lender in a mortgage agreement.

MORTGAGOR The borrower in a mortgage agreement.

NEGATIVE AMORTIZATION Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the balance due is added to the loan balance making it rise - thus, "negative amortization."

NOTICE OF DEFAULT A formal written notice to a borrower that a default has occurred and that legal action may be taken.

1/1 ARM A thirty year loan which adjusts annually based upon an index plus a margin. Generally a 1 year ARM has a 2% annual rate cap.

ORIGINATION FEE A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount (1% is generally known as one point). Origination Fee and points are often used synomously.

OWNER FINANCING A purchase in which the seller provides all or part of the financing.

PAYMENT CAP A provision of some ARM's limiting how much a borrower's payments may increase regardless of how much the interest rate increases; be aware that on some ARM's, the small payment cap may lead to "negative amortization."

PERS Public Employee Retirement System. (Click for info)

PITI Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

POINTS A one-time charge paid by the borrower at loan origination to decrease the interest rate for the term of the loan. All interest rate/point combinations are virtual financial equivalents.

PREPAYMENT PENALTY A fee charged to a borrower who pays off a loan before it is due. Most prepayment penalties are in effect for the first 3-5 years. Some loan programs contain a prepayment penalty, others do not. Check with your loan officer for details.

PREQUALIFICATION The process of determining before a loan is applied for how much money a prospective home buyer will be eligible to borrow.

PRINCIPAL The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI) Insurance provided by a nongovernmental insurer that protects lenders against a loss if a borrower defaults. Usually required on all loans with an "LTV" of more than 80%.

PURCHASE AGREEMENT A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

QUALIFYING RATIOS Guidelines applied by lenders to determine how large a loan to grant the home buyer. The debt-to-income ratio is your current monthly debt on loans and credit cards divided by your gross income. The housing-to-income ratio is your new housing payments divided by your gross income.

RADON A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Your lender may require a radon check on your home.

RATE AND TERM REFINANCE Obtaining a new loan which replaces existing mortgages plus loan costs only. The borrower receives no cash out from the transaction.

RATE LOCK See "Lock-in."

REAL ESTATE AGENT (REALTOR) A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both parties.

REAL ESTATE SETTLEMENT PROCEDURES ACT A consumer protection law that requires lenders to give borrowers advance notice of closing costs, including "APR."

REFINANCING The process of paying off one loan with the proceeds from a new loan secured by the same property.

SECOND MORTGAGE A mortgage that has rights that are subordinate to the rights of the first mortgage. As such, these loans are often less secure and may demand a slightly higher interest rate.

SECONDARY MORTGAGE MARKET The buying and selling of existing mortgages. at "Just the FAQs" Question #28.

7/1 ARM A thirty year loan which is fixed for the first seven years. After this period the loan becomes a one-year adjustable for the remaining 23 years.

SELLER CARRY-BACK (SELLER FINANCING) An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

SETTLEMENT STATEMENT The computation of all disbursements at closing that reflects the seller's net proceeds and the buyer's funds required for completing the transaction. Also, referred to as the final HUD statement.

SUBSIDIZED SECOND MORTGAGE An alternative financing option for low-income and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by the city, county or state housing agencies, foundations, or nonprofit corporations. Payment on the second mortgage is often deferred, carries no or low interest rates, and part of the debt may be forgiven for each year the family remains in the home.

SURVEY A drawing showing the legal boundaries of a property, its fixtures, and any easements or encroachments.

TAX SERVICE An outside service contracted by the lender to investigate and confirm property taxes are current through the life of the loan.

10/1 ARM A 30 year loan which is fixed for the first ten years. After this period the loan becomes a one-year adjustable for the remaining twenty years.

TENANCY IN COMMON A type of joint ownership in a property without right of survivorship.

TERM OF LOAN The predetermined length of time the funds will be lent to the borrower.

3/1 ARM A thirty year loan which is fixed for the first three years. After this period the loan becomes a one-year adjustable for the remaining twenty-seven years.

TITLE A legal document establishing the right of ownership.

TITLE COMPANY A company that specializes in title searches and insuring title to the property.

TITLE INSURANCE Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over ownership of a property.

TITLE SEARCH A check for the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

TRANSFER TAX State or local tax payable when title passes from one owner to another.

TRUTH-IN-LENDING A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

UNDERWRITING The process of evaluating a loan application to determine the risk involved for the lender.

V.A. LOAN A loan that is guaranteed by the Veterans Administration.

VESTING A manner of holding title.

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