Adjustable RateAn interest
rate that changes periodically in relation to an index. Payments
may increase or decrease accordingly.
AmortizationA 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 MembershipAn 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.
ApplicationAn initial statement
of personal and financial information which is required to
approve your loan.
Application FeeFees that
are paid upon application. An application fee may frequently
include charges for property appraisal ($200-$400) and a credit
report ($30-50).
AppraisalA 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 MortgageThe
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 PaymentA lump sum
payment for the unpaid balance of the loan.
CapThe maximum allowable
increase, for either payment or interest rate, for a specified
amount of time on an adjustable rate mortgage.
Cash OutReceiving money back
when refinancing your present mortgage.
CeilingThe maximum allowable
interest rate over the life of the loan of an adjustable rate
mortgage.
Closing CostsAny 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 LoanGenerally,
a mortgage loan under $203,150. Qualifying ratios and underwriting
methods are standardized to a large degree.
Contract of SaleThe 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 LimitThe maximum amount
that you can borrow under a home equity plan.
Debt ServiceThe total amount
of credit card, auto, mortgage or other debt upon which you
must pay.
Deed of TrustUsed 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 PaymentThe 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 SaleA 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 RateThe
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.
EncumbranceA claim against
a property by another party which usually affects the ability
to transfer ownership of the property.
EquityThe difference between
the fair market value (appraised value) of your home and your
outstanding mortgage balance.
First MortgageA mortgage
which is in first lien position, taking priority over all
other liens (which are financial encumbrances).
Fixed RateAn interest rate
which is fixed for the term of the loan. Payments as well
are fixed at one amount.
FHA LoanMore 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 EstimateA written
estimate of closing costs which a lender must provide you
within three days of submitting an application.
Grace PeriodA 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 IncomeFor qualifying
purposes, the income of the borrower before taxes or expenses
are deducted.
Home Equity Line of CreditA
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 LoanA 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 InsuranceA 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 StatementA
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.
IndexA 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 RateThe periodic
charge, expressed as a percentage, for use of credit.
Jumbo LoanMortgage 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 InA 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.
MarginAn amount, usually
a percentage, which is added to the index to determine the
interest rate for adjustable rate mortgages.
Minimum PaymentThe 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 BankerOriginates
mortgage loans, loaning you their funds and closing the loan
in their name.
Mortgage BrokerAs 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 LoanA 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.
MortgageeThe lender in a
mortgage loan transaction.
MortgagorThe borrower in
a mortgage loan transaction.
Negative AmortizationAmortization
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.
PITIPrincipal, interest,
taxes and insurance, which comprise your monthly mortgage
payment.
PointsThe 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). More...
Prepayment PenaltyA fee paid
to the lending institution for paying a loan prior to the
scheduled maturity date.
Qualifying RatiosComparisons
of a borrower's debts and gross monthly income.
Right to RescissionThe 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 InterestAn interest
that a lender takes in the borrower's property to assure repayment
of a debt.
Servicing a LoanThe ongoing
process of collecting your monthly mortgage payment, including
accounting for and payment of your yearly tax and/or homeowners
insurance bills.
TitleThe written evidence
that proves the right of ownership of a specific piece of
property.
Title InsuranceProtection
for lenders or homeowners against financial loss resulting
from legal defects in the title.
Transaction FeeA fee which
may be charged each time you draw on a home equity credit
line.
UnderwritingThe process of
verifying data and approving a loan.
Variable RateAn interest
rate that changes periodically in relation to an index. Payments
may increase or decrease accordingly.
VA LoanMore 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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