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Rate - An interest rate that changes periodically
in relation to an index. Payments may increase or
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
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 upfront 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
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
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
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
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. More...
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). More...
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
Effective Interest Rate
- The cost of credit on a yearly basis expressed
as a percentage. Includes upfront 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.
Estimate - A written estimate of closing costs
which a lender must provide you within three days
of submitting an application. More...
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
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
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. More...
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,
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.
- 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
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
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. More...
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
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). More...
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
- 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