|
| |
| 2/1 Buy Down Mortgage |
| The 2/1 Buy Down Mortgage allows the borrower to qualify
at below market rates so they can borrow more. The initial
starting interest rate increases by 1% at the end of
the first year and adjusts again by another 1% at the
end of the second year. It then remains at a fixed interest
rate for the remainder of the loan term.
Borrowers often refinance at the end of the second
year to obtain the best long term rates, however even
keeping the loan in place for three full years or
more will keep their average interest rate in line
with the original market conditions. |
| |
| Acceleration Clause |
| Provision in a mortgage that allows the lender to
demand payment of the entire principal balance if a
monthly payment is missed or some other default occurs.
|
| |
| Additional Principal
Payment |
| A way to reduce the remaining balance on the loan
by paying more than the scheduled principal amount due. |
| |
| Adjustable Rate Mortgage
(ARM) |
| A mortgage with an interest rate that changes during
the life of the loan according to movements in an index
rate. Sometimes called AMLs (adjustable mortgage loans)
or VRMs (variable-rate mortgages). |
| |
| Adjusted Basis |
| The cost of a property plus the value of any capital
expenditures for improvements to the property minus
any depreciation taken. |
| |
| Adjustment Date |
| The date that the interest rate changes on an adjustable-rate
mortgage (ARM). |
| |
| Adjustment Period |
| The period elapsing between adjustment dates for an
adjustable-rate mortgage (ARM). |
| |
| Affordability Analysis |
| An analysis of a buyers ability to afford the purchase
of a home. Reviews income, liabilities, and available
funds, and considers the type of mortgage you plan to
use, the area where you want to purchase a home, and
the closing costs that are likely. |
| |
| Amortization |
| The gradual repayment of a mortgage loan, both principal
and interest, by installments. |
| |
| Amortization Term |
| The length of time required to amortize the mortgage
loan expressed as a number of months. For example, 360
months is the amortization term for a 30-year fixed-rate
mortgage. |
| |
| Annual Percentage Rate
(APR) |
| The cost of credit, expressed as a yearly rate including
interest and mortgage insurance and loan origination
fees. This allows the buyer to compare loans, however
APR should not be confused with the actual note rate.
|
| |
| Appraisal |
| A written analysis prepared by a qualified appraiser
and estimating the value of a property. |
| |
| Appraised Value |
| An opinion of a property's fair market value, based
on an appraiser's knowledge, experience, and analysis
of the property. |
| |
| Asset |
| Anything owned of monetary value including real property,
personal property, and enforceable claims against others
(including bank accounts, stocks, mutual funds, etc.).
|
| |
| Assignment |
| The transfer of a mortgage from one person to another. |
| |
| Assumability |
| An assumable mortgage can be transferred from the
seller to the new buyer. Generally requires a credit
review of the new borrower and lenders may charge a
fee for the assumption. If a mortgage contains a due-on-sale
clause, it may not be assumed by a new buyer. |
| |
| Assumption Fee |
| The fee paid to a lender (usually by the purchaser
of real property) when an assumption takes place. |
 |
| |
| Balance Sheet |
| A financial statement that shows assets, liabilities,
and net worth as of a specific date. |
| |
| Balloon Mortgage |
| A mortgage with level monthly payments that amortizes
over a stated term but also requires that a lump sum
payment be paid at the end of an earlier specified term.
|
| |
| Balloon Payment |
| The final lump sum paid at the maturity date of a
balloon mortgage. |
| |
| Before-Tax Income |
| Income before taxes are deducted. |
| |
| Biweekly Payment Mortgage |
| A plan to reduce the debt every two weeks (instead
of the standard monthly payment schedule). The 26 (or
possibly 27) biweekly payments are each equal to one-half
of the monthly payment required if the loan were a standard
30-year fixed-rate mortgage. The result for the borrower
is a substantial savings in interest. |
| |
| Bridge Loan |
| A second trust that is collateralized by the borrower's
present home allowing the proceeds to be used to close
on a new house before the present home is sold. Also
known as "swing loan." |
| |
| Broker |
| An individual or company that brings borrowers and
lenders together for the purpose of loan origination. |
| |
| Buydown |
| When the seller, builder or buyer pays an amount of
money up front to the lender to reduce monthly payments
during the first few years of a mortgage. Buydowns can
occur in both fixed and adjustable rate mortgages. |
|
| |
| Cap |
| Limits how much the interest rate or the monthly payment
can increase, either at each adjustment or during the
life of the mortgage. Payment caps don't limit the amount
of interest the lender is earning and may cause negative
amortization. |
| |
| Certificate of Eligibility |
| A document issued by the federal government certifying
a veteran’s eligibility for a Department of Veterans
Affairs (VA) mortgage. |
| |
| Certificate of Reasonable
Value (CRV) |
| A document issued by the Department of Veterans Affairs
(VA) that establishes the maximum value and loan amount
for a VA mortgage. |
| |
| Change Frequency |
| The frequency (in months) of payment and/or interest
rate changes in an adjustable-rate mortgage (ARM). |
| |
| Closing |
| A meeting held to finalize the sale of a property.
The buyer signs the mortgage documents and pays closing
costs. Also called "settlement." |
| |
| Closing Costs |
| These are expenses - over and above the price of the
property- that are incurred by buyers and sellers when
transferring ownership of a property. Closing costs
normally include an origination fee, property taxes,
charges for title insurance and escrow costs, appraisal
fees, etc. Closing costs will vary according to the
area country and the lenders used. |
| |
| Compound Interest |
| Interest paid on the original principal balance and
on the accrued and unpaid interest. |
| |
| Consumer Reporting Agency
(or Bureau) |
| An organization that handles the preparation of reports
used by lenders to determine a potential borrower's
credit history. The agency gets data for these reports
from a credit repository and from other sources. |
| |
| Conversion Clause |
| A provision in an ARM allowing the loan to be converted
to a fixed-rate at some point during the term. Usually
conversion is allowed at the end of the first adjustment
period. The conversion feature may cost extra. |
| |
| Credit Report |
| A report detailing an individual's credit history
that is prepared by a credit bureau and used by a lender
to determine a loan applicant's creditworthiness. |
| |
| Credit Risk Score |
| A credit risk score is a statistical summary of the
information contained in a consumer's credit report.
The most well known type of credit risk score is the
Fair Isaac or FICO score. This form of credit scoring
is a mathematical summary calculation that assigns numerical
values to various pieces of information in the credit
report. The overall credit risk score is highly relative
in the credit underwriting process for a mortgage loan.
|
|
| |
| Deed of Trust |
| The document used in some states instead of a mortgage.
Title is conveyed to a trustee. |
| |
| Default |
| Failure to make mortgage payments on a timely basis
or to comply with other requirements of a mortgage.
|
| |
| Delinquency |
| Failure to make mortgage payments on time. |
| |
| Deposit |
| This is a sum of money given to bind the sale of real
estate, or a sum of money given to ensure payment or
an advance of funds in the processing of a loan. |
| |
| Discount |
| In an ARM with an initial rate discount, the lender
gives up a number of percentage points in interest to
reduce the rate and lower the payments for part of the
mortgage term (usually for one year or less). After
the discount period, the ARM rate usually increases
according to its index rate. |
| |
| Down Payment |
| Part of the purchase price of a property that is paid
in cash and not financed with a mortgage. |
|
| |
| Effective Gross Income |
| A borrowers normal annual income, including overtime
that is regular or guaranteed. Salary is usually the
principal source, but other income may qualify if it
is significant and stable. |
| |
| Equity |
| The amount of financial interest in a property. Equity
is the difference between the fair market value of the
property and the amount still owed on the mortgage. |
| |
| Escrow |
| An item of value, money, or documents deposited with
a third party to be delivered upon the fulfillment of
a condition. For example, the deposit of funds or documents
with into an escrow account to be disbursed upon the
closing of a sale of real estate. |
| |
| Escrow Disbursements |
| The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other property
expenses as they become due. |
| |
| Escrow Payment |
| The part of a mortgagor’s monthly payment that
is held by the servicer to pay for taxes, hazard insurance,
mortgage insurance, lease payments, and other items
as they become due. |
|
| |
| Fannie Mae |
| A congressionally chartered, shareholder-owned company
that is the nation's largest supplier of home mortgage
funds. |
| |
| FHA Mortgage |
| A mortgage that is insured by the Federal Housing
Administration (FHA). Also known as a government mortgage.
|
| |
| First Mortgage |
| The primary lien against a property. |
| |
| Fixed Installment |
| The monthly payment due on a mortgage loan including
payment of both principal and interest. |
| |
| Fixed-Rate Mortgage
(FRM) |
| A mortgage interest that are fixed throughout the
entire term of the loan. |
| |
| Fully Amortized ARM |
| An adjustable-rate mortgage (ARM) with a monthly payment
that is sufficient to amortize the remaining balance,
at the interest accrual rate, over the amortization
term. |
|
| |
| GNMA |
| A government-owned corporation that assumed responsibility
for the special assistance loan program formerly administered
by Fannie Mae. Popularly known as Ginnie Mae. |
| |
| Growing-Equity Mortgage
(GEM) |
| A fixed-rate mortgage that provides scheduled payment
increases over an established period of time. The increased
amount of the monthly payment is applied directly toward
reducing the remaining balance of the mortgage. |
| |
| Guarantee Mortgage |
| A mortgage that is guaranteed by a third party |
|
| |
| Housing Expense Ratio |
| The percentage of gross monthly income budgeted to
pay housing expenses. |
| |
| HUD-1 Statement |
| A document that provides an itemized listing of the
funds that are payable at closing. Items that appear
on the statement include real estate commissions, loan
fees, points, and initial escrow amounts. Each item
on the statement is represented by a separate number
within a standardized numbering system. The totals at
the bottom of the HUD-1 statement define the seller's
net proceeds and the buyer's net payment at closing.
|
| |
| Hybrid ARM (3/1 ARM,
5/1 ARM, 7/1 ARM) |
| A combination fixed rate and adjustable rate loan
- also called 3/1,5/1,7/1 - can offer the best of both
worlds. A lower interest rates (like ARMs) and a fixed
payment for a longer period of time than most adjustable
rate loans. For example, a "5/1 loan" has
a fixed monthly payment and interest for the first five
years and then turns into a traditional adjustable rate
loan, based on then-current rates for the remaining
25 years. It's a good choice for people who expect to
move or refinance, before or shortly after, the adjustment
occurs. |
|
| |
| Index |
| The index is the measure of interest rate changes
a lender uses to decide the amount an interest rate
on an ARM will change over time. The index is generally
a published number or percentage, such as the average
interest rate or yield on Treasury bills. Some index
rates tend to be higher than others and some more volatile.
|
| |
| Initial Interest Rate |
| This refers to the original interest rate of the mortgage
at the time of closing. This rate changes for an adjustable-rate
mortgage (ARM). It's also known as "start rate"
or "teaser." |
| |
| Installment |
| The regular periodic payment that a borrower agrees
to make to a lender. |
| |
| Insured Mortgage |
| A mortgage that is protected by the Federal Housing
Administration (FHA) or by private mortgage insurance
(MI). |
| |
| Interest |
| The fee charged for borrowing money. |
| |
| Interest Accrual Rate |
| The percentage rate at which interest accrues on the
mortgage. In most cases, it is also the rate used to
calculate the monthly payments. |
| |
| Interest Rate Buydown
Plan |
| An arrangement that allows the property seller to
deposit money to an account. That money is then released
each month to reduce the mortgagor's monthly payments
during the early years of a mortgage. |
| |
| Interest Rate Ceiling |
| For an adjustable-rate mortgage (ARM), the maximum
interest rate, as specified in the mortgage note. |
| |
| Interest Rate Floor |
| For an adjustable-rate mortgage (ARM), the minimum
interest rate, as specified in the mortgage note. |
|
| |
| Late Charge |
| The penalty a borrower must pay when a payment is
made a stated number of days (usually 15) after the
due date. |
| |
| Lease Purchase Mortgage
Loan |
| An alternative financing option that allows low- and
moderate-income home buyers to lease a home with an
option to buy. Each month's rent payment consists of
principal, interest, taxes and insurance (PITI) payments
on the first mortgage plus an extra amount that accumulates
in a savings account for a down payment. |
| |
| Liabilities |
| A person's financial obligations. Liabilities include
long-term and short-term debt. |
| |
| Lifetime Payment Cap |
| For an adjustable-rate mortgage (ARM), a limit on
the amount that payments can increase or decrease over
the life of the mortgage. |
| |
| Lifetime Rate Cap |
| For an adjustable-rate mortgage (ARM), a limit on
the amount that the interest rate can increase or decrease
over the life of the loan. See cap. |
| |
| Line of Credit |
| An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount
for a certain time. |
| |
| Liquid Asset |
| A cash asset or an asset that is easily converted
into cash. |
| |
| Loan |
| A sum of borrowed money (principal) that is generally
repaid with interest. |
| |
| Loan-to-Value (LTV)
Percentage |
| The relationship between the principal balance of
the mortgage and the appraised value (or sales price
if it is lower) of the property. For example, a $100,000
home with an $80,000 mortgage has an LTV of 80 percent.
|
| |
| Lock-In Period |
| The guarantee of an interest rate for a specified
period of time by a lender, including loan term and
points, if any, to be paid at closing. Short term locks
(under 21 days), are usually available after lender
loan approval only. However, many lenders may permit
a borrower to lock a loan for 30 days or more prior
to submission of the loan application. |
|
| |
| Margin |
| The number of percentage points the lender adds to
the index rate to calculate the ARM interest rate at
each adjustment. |
| |
| Maturity |
| The date on which the principal balance of a loan
becomes due and payable. |
| |
| Monthly Fixed Installment |
| That portion of the total monthly payment that is
applied toward principal and interest. When a mortgage
negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction
and doesn't cover all of the interest. The loan balance
therefore increases instead of decreasing. |
| |
| Mortgage |
| A legal document that pledges a property to the lender
as security for payment of a debt. |
| |
| Mortgage Banker |
| A company that originates mortgages exclusively for
resale in the secondary mortgage market. |
| |
| Mortgage Broker |
| An individual or company that brings borrowers and
lenders together for the purpose of loan origination.
|
| |
| Mortgage Insurance |
| A contract that insures the lender against loss caused
by a mortgagor's default on a government mortgage or
conventional mortgage. Mortgage insurance can be issued
by a private company or by a government agency. |
| |
| Mortgage Insurance Premium
(MIP) |
| The amount paid by a mortgagor for mortgage insurance. |
| |
| Mortgage Life Insurance |
| A type of term life insurance In the event that the
borrower dies while the policy is in force, the debt
is automatically paid by insurance proceeds. |
| |
| Mortgagor |
| The borrower in a mortgage agreement. |
|
| |
| Negative Amortization |
| Amortization means that monthly payments are large
enough to pay the interest and reduce the principal
on your mortgage. Negative amortization occurs when
the monthly payments do not cover all of the interest
cost. The interest cost that isn't covered is added
to the unpaid principal balance. This means that even
after making many payments, you could owe more than
you did at the beginning of the loan. Negative amortization
can occur when an ARM has a payment cap that results
in monthly payments not high enough to cover the interest
due. |
| |
| Net Worth |
| The value of all of a person's assets, including cash. |
| |
| Non Liquid Asset |
| An asset that cannot easily be converted into cash.
|
| |
| Note |
| A legal document that obligates a borrower to repay
a mortgage loan at a stated interest rate during a specified
period of time. |
|
| |
| Origination Fee |
| A fee paid to a lender for processing a loan application.
The origination fee is stated in the form of points.
One point is 1 percent of the mortgage amount. |
| |
| Owner Financing |
| A property purchase transaction in which the party
selling the property provides all or part of the financing. |
|
| |
| Payment Change Date |
| The date when a new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM) or a graduated-payment
mortgage (GPM). Generally, the payment change date occurs
in the month immediately after the adjustment date.
|
| |
| Periodic Payment Cap |
| A limit on the amount that payments can increase or
decrease during any one adjustment period. |
| |
| Periodic Rate Cap |
| A limit on the amount that the interest rate can increase
or decrease during any one adjustment period, regardless
of how high or low the index might be. |
| |
| PITI Reserves |
| A cash amount that a borrower must have on hand after
making a down payment and paying all closing costs for
the purchase of a home. The principal, interest, taxes,
and insurance (PITI) reserves must equal the amount
that the borrower would have to pay for PITI for a predefined
number of months (usually three). |
| |
| Points |
| A point is equal to one percent of the principal amount
of your mortgage. For example, if you get a mortgage
for $165,000 one point means $1,650 to the lender. Points
usually are collected at closing and may be paid by
the borrower or the home seller, or may be split between
them. |
| |
| Prepayment Penalty |
| A fee that may be charged to a borrower who pays off
a loan before it is due. |
| |
| Pre-Approval |
| The process of determining how much money you will
be eligible to borrow before you apply for a loan. |
| |
| Prime Rate |
| The interest rate that banks charge to their preferred
customers. Changes in the prime rate influence changes
in other rates, including mortgage interest rates. |
| |
| Principal |
| The amount borrowed or remaining unpaid. The part
of the monthly payment that reduces the remaining balance
of a mortgage. |
| |
| Principal Balance |
| The outstanding balance of principal on a mortgage
not including interest or any other charges. |
| |
| Principal, Interest,
Taxes, and Insurance (PITI) |
| The four components of a monthly mortgage payment.
Principal refers to the part of the monthly payment
that reduces the remaining balance of the mortgage.
Interest is the fee charged for borrowing money. Taxes
and insurance refer to the monthly cost of property
taxes and homeowners insurance, whether these amounts
that are paid into an escrow account each month or not. |
| |
| Private Mortgage Insurance
(PMI) |
| Mortgage insurance provided by a private mortgage
insurance company to protect lenders against loss if
a borrower defaults. Most lenders generally require
MI for a loan with a loan-to-value (LTV) percentage
in excess of 80 percent. |
|
| |
| Qualifying Ratios |
| Calculations used to determine if a borrower can qualify
for a mortgage. They consist of two separate calculations:
a housing expense as a percent of income ratio and total
debt obligations as a percent of income ratio. |
|
| |
| Rate Lock |
| A commitment issued by a lender to a borrower or other
mortgage originator guaranteeing a specified interest
rate and lender costs for a specified period of time. |
| |
| Real Estate Agent |
| A person licensed to negotiate and transact the sale
of real estate on behalf of the property owner. |
| |
| Real Estate Settlement
Procedures Act (RESPA) |
| A consumer protection law that requires lenders to
give borrowers advance notice of closing costs. |
| |
| Realtor® |
| A real estate broker or an associate who is an active
member in a local real estate board that is affiliated
with the National Association of Realtors. |
| |
| Recording |
| The noting in the registrar’s office of the
details of a properly executed legal document, such
as a deed, a mortgage note, a satisfaction of mortgage,
or an extension of mortgage, thereby making it a part
of the public record. |
| |
| Refinance |
| Paying off one loan with the proceeds from a new loan
using the same property as security. |
| |
| Revolving Liability |
| A credit arrangement, such as a credit card, that
allows a customer to borrow against a pre-approved line
of credit when purchasing goods and services. |
|
| |
| Secondary Mortgage Market |
| Where existing mortgages are bought and sold. |
| |
| Security |
| The property that will be pledged as collateral for
a loan. |
| |
| Seller Carry-Back |
| An agreement in which the owner of a property provides
financing, often in combination with an assumable mortgage.
See owner financing. |
| |
| Servicer |
| An organization that collects principal and interest
payments from borrowers and manages borrowers’
escrow accounts. The servicer often services mortgages
that have been purchased by an investor in the secondary
mortgage market. |
| |
| Standard Payment Calculation |
| The method used to determine the monthly payment required
to repay the remaining balance of a mortgage in substantially
equal installments over the remaining term of the mortgage
at the current interest rate. |
| |
| Step-Rate Mortgage |
| A mortgage that allows for the interest rate to increase
according to a specified schedule (i.e., seven years),
resulting in increased payments as well. At the end
of the specified period, the rate and payments will
remain constant for the remainder of the loan. |
|
| |
| Third-Party Origination |
| When a lender uses another party to completely or
partially originate, process, underwrite, close, fund,
or package the mortgages it plans to deliver to the
secondary mortgage market. |
| |
| Total Expense Ratio |
| Total obligations as a percentage of gross monthly
income including monthly housing expenses plus other
monthly debts. |
| |
| Treasury Index |
| An index used to determine interest rate changes for
certain adjustable-rate mortgage (ARM) plans. Based
on the results of auctions that the U.S. Treasury holds
for its Treasury bills and securities or derived from
the U.S. Treasury's daily yield curve, which is based
on the closing market bid yields on actively traded
Treasury securities in the over-the-counter market. |
| |
| Truth-in-Lending |
| A federal law that requires lenders to fully disclose,
in writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other
charges. |
| |
| Two-Step Mortgage |
| An adjustable-rate mortgage (ARM) with one interest
rate for the first five or seven years of its mortgage
term and a different interest rate for the remainder
of the amortization term. |
|
| |
| Underwriting |
| The process of evaluating a loan application to determine
the risk involved for the lender. Underwriting involves
an analysis of the borrower's creditworthiness and the
quality of the property itself. |
|
| |
| VA Mortgage |
| A mortgage that is guaranteed by the Department of
Veterans Affairs (VA). Also known as a government mortgage.
|
|
| |
| "Wrap Around"
Mortgage |
| A mortgage that includes the remaining balance on
an existing first mortgage plus an additional amount
requested by the mortgagor. Full payments on both mortgages
are made to the "Wrap Around" mortgagee, who
then forwards the payments on the first mortgage to
the first mortgagee. These mortgages may not be allowed
by the first mortgage holder, and if discovered, could
be subject to a demand for full payment. |
|
