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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.
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.
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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.
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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.
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