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GLOSSARY |
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Click
on the letter corresponding with the first letter of
the word
you want to look up:
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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 |
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A |
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Acceleration
The right of the
mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default
of the mortgagor (borrower), or by using the right
vested in the Due-on-Sale Clause. |
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Adjustable Rate Mortgage
(ARM)
A mortgage in which the interest rate is adjusted periodically
based on a preselected index. Also sometimes known
as the renegotiable rate mortgage, the variable rate
mortgage or the Canadian rollover mortgage. |
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Adjustment Interval
On an adjustable rate mortgage, the time between changes
in the interest rate and/or monthly payment, typically
six months, one year, three years or five years depending
on the index. |
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Amortization
Means loan re-payment by equal periodic payments calculated
to pay off the debt at the end of a fixed period,
including accrued interest on the outstanding balance. |
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Annual Percentage
Rate (A.P.R.)
APR is a measurement of the full cost of a loan including
interest and loan fees expressed as a yearly percentage
rate. Because all lenders apply the same rules in calculating
the annual percentage rate, it provides consumers with
a good basis for comparing the cost of loans. |
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Appraisal
An estimate of
the value of property, made by a qualified professional
called an "appraiser." |
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Assessment
A local tax levied against a property for a specific
purpose, such as a sewer or street lights. |
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Assumption
An agreement between buyer and seller where the buyer
takes over the payments on an existing mortgage from
the seller. Assuming a loan can usually save the
buyer money since this is an existing mortgage debt,
unlike a new mortgage where closing costs and new,
possibly higher, market-rate interest charges will
apply. |
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B |
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Balloon Mortgage
A loan which is amortized for a longer period than
the term of the loan. An example would be a thirty-year
amortization and a five year term. At the end of
the term of the loan, the remaining outstanding principal
on the loan is due. This final payment is known as
a balloon payment. |
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Blanket Mortgage
A mortgage covering at least two pieces of real estate
as security for the same mortgage. |
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Borrower (Mortgagor)
One who applies for and receives a loan in the form
of a mortgage with the intention of repaying the
loan in full. |
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Broker
An individual in the business of assisting in arranging
funding or negotiating contracts for a client but
who does not loan the money himself. Brokers usually
charge a fee or receive a commission for their services. |
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Buy-down
When the lender and/or the home builder subsidize the
mortgage by lowering the interest rate during the
first few years of the loan. While the payments are
initially low, they will increase when the subsidy
expires. |
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C |
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Cash Flow
The amount of cash derived over a certain period of
time from an income-producing property. The cash
flow should be large enough to pay the expenses of
the income property (mortgage payment, maintenance,
utilities, etc.) |
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Caps (RE: Interest)
Consumer safeguards which limit the amount the interest
rate on an adjustable rate mortgage may change per
year and/or over the life of the loan. |
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Caps (RE: Payment)
Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change. |
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Certificate of Eligibility
The document given to qualified veterans which entitles
them to VA guaranteed loans for homes, business and
mobile homes. Certificates of eligibility may be
obtained by sending form DD-214 (Separation Paper)
to the local VA office with VA form 1880 (request
for Certificate of Eligibility). |
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Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration
showing the property's current market value. |
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Certificate
of Veteran Status
The document given
to veterans or reservists who have served 90 days of
continuous active duty (including training time). It
may be obtained by sending DD-214 to the local VA office
with form 26-8261a (request for certificate of veteran
status). This document enables veterans to obtain lower
down payments on certain FHA insured loans. |
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Closing/Closing Costs
The meeting between the buyer, seller and lender or
their agents where the property and funds legally
change hands. Also called settlement. Closing costs
usually include an origination fee, appraisal fee,
title search and insurance, survey, taxes, deed recording
fee, credit report charge and other costs assessed
at settlement. The costs of closing usually are about
3 percent to 6 percent of the mortgage amount. |
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COFI
Adjustable rate mortgage with a rate that adjusts based
on a cost-of-funds index, often the 11th District
Cost of Funds. |
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Construction Loan
A short term interim loan to pay for the construction
of buildings or homes. These are usually designed
to provide periodic disbursements to the builder
as he progresses. |
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Conventional Loan
A mortgage not insured by FHA or guaranteed by the
VA. |
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Credit Report
A report documenting the credit history and current
status of a borrower's credit standing. |
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D |
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Debt-to-Income Ratio
The ratio, expressed
as a percentage, which results when a borrower's monthly
payment obligation on long-term
debts is divided by his or her gross monthly income. See: Housing
Expenses-To-Income Ratio. |
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Deed of Trust
In many states, this document is used in place of a
mortgage to secure the payment of a note. |
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Default
Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage. |
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Deferred Interest
When a mortgage
is written with a monthly payment that is less than
required to satisfy the note rate, the
unpaid interest is deferred by adding it to the loan
balance. See: Negative
Amortization. |
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Delinquency
Failure to make payments on time. This can lead to
foreclosure. |
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Department of Veterans Affairs (VA)
An independent agency of the federal government which
guarantees long-term, low or no-down payment mortgages
to eligible veterans. |
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Down Payment
Money paid to make up the difference between the purchase
price and the mortgage amount. |
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Due-on-Sale Clause
A provision in a mortgage or deed of trust that allows
the lender to demand immediate payment of the balance
of the mortgage if the mortgage holder sells the
home. |
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E |
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Earnest Money
Money given by a buyer to a seller as part of the purchase
price to bind a transaction or assure payment. |
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Entitlement
The VA home loan benefit is called entitlement for
a VA guaranteed home loan. This is also known as
eligibility. |
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Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors
to make credit equally available without discrimination
based on race, color, religion, national origin,
age, sex, marital status or receipt of income from
public assistance programs. |
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Equity
The difference between the fair market value and current
indebtedness of a property, also referred to as the
owner's interest. |
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Escrow
An account held by the lender into which the home buyer
pays money for tax or insurance payments. Also used
for earnest deposits held pending loan closing. |
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F |
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Fannie Mae
See: Federal
National Mortgage Association. |
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Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers
who are unable to obtain loans elsewhere. |
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Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory
agency for federally chartered savings institutions.
The agency is now called the Office of Thrift Supervision |
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Federal Home Loan Mortgage Corporation
(FHLMC)
Also called "Freddie Mac",
a quasi-governmental agency that purchases conventional
mortgages from insured
depository institutions and HUD-approved mortgage bankers. |
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Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development.
Its main activity is the insuring of residential
mortgage loans made by private lenders. FHA also
sets standards for underwriting mortgages. |
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Federal National Mortgage Association
Also know as "Fannie Mae," a
tax-paying corporation created by Congress that purchases
and sells conventional
residential mortgages as well as those insured by FHA
or guaranteed by VA. This institution, which provides
funds for one in seven mortgages, makes mortgage money
more available and more affordable. |
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FHA Loan
A loan insured by the Federal Housing Administration
open to all qualified home purchasers. While there
are limits to the size of FHA loans ($208,800 as
of 3/1/99), they are generous enough to handle moderately-priced
homes almost anywhere in the country. |
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FHA Mortgage Insurance
Requires a fee (up to 2.25 percent of the loan amount)
paid at closing to insure the loan with FHA. In addition,
FHA mortgage insurance requires an annual fee of
up to 0.5 percent of the current loan amount, paid
in monthly installments. The lower the down payment,
the more years the fee must be paid. |
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Firm Commitment
A promise by FHA to insure a mortgage loan for a specified
property and borrower. A promise from a lender to
make a mortgage loan. |
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Fixed Rate Mortgage
The mortgage interest rate will remain the same on
these mortgages throughout the term of the mortgage
for the original borrower. |
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Foreclosure
A legal process by which the lender or the seller forces
the sale of a mortgaged property because the borrower
has not met the terms of the mortgage. Also known
as a repossession of property. |
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Freddie Mac
See: Federal
Home Loan Mortgage Corporation. |
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G |
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Graduated Payment Mortgage
(GPM)
A type of flexible-payment mortgage where the payments
increase for a specified period of time and then level
off. This type of mortgage has negative
amortization built into it. |
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Guaranty
A promise by one party to pay a debt or perform an
obligation contracted by another if the original
party fails to pay or perform according to a contract. |
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H |
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Hazard Insurance
A form of insurance in which the insurance company
protects the insured from specified losses, such
as fire, windstorm and the like. |
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Housing Expenses-to-Income Ratio
The ratio, expressed
as a percentage, which results when a borrower's housing
expenses are divided by
his/her gross monthly income. See:
Debt-To-Income Ratio. |
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I |
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Impound
That portion of a borrower's monthly payments held
by the lender or servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and
other items as they become due. Also known as reserves. |
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Index
A published interest rate against which lenders measure
the difference between the current interest rate
on an adjustable rate mortgage and that earned by
other investments (such as one-, three-, and five-year
U.S. Treasury security yields, the monthly average
interest rate on loans closed by savings and loan
institutions, and the monthly average costs-of-funds
incurred by savings and loans), which is then used
to adjust the interest rate on an adjustable mortgage
up or down. |
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Indexed Rate
The sum of the published index plus the margin. For
example if the index were 9% and the margin 2.75%,
the indexed rate would be 11.75%. Often, lenders
charge less than the indexed rate the first year
of an adjustable-rate mortgage. |
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Interim Financing
A construction loan made during completion of a building
or a project. A permanent loan usually replaces this
loan after completion. |
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Intermediate Loan
An adjustable
rate mortgage in which the rate is fixed
for three, five, seven or ten years but may adjust
annually after that. |
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Investor
A money source for a lender. |
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Jumbo Loan
A loan which is larger than the limits set by the Federal
National Mortgage Association and the Federal Home
Loan Mortgage Corporation (more than $240,000 as
of 3/1/99). Because jumbo loans cannot be funded
by these two agencies, they usually carry a higher
interest rate. |
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L |
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Lien
A claim upon a piece of property for the payment or
satisfaction of a debt or obligation. |
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Loan-to-Value Ratio
The relationship between the amount of the mortgage
loan and the appraised value of the property expressed
as a percentage. |
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M |
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Margin
The amount a lender adds to the index on an adjustable
rate mortgage to establish the adjusted interest
rate. |
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Market Value
The highest price that a buyer would pay and the lowest
price a seller would accept on a property. Market
value may be different from the price a property
could actually be sold for at a given time. |
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Mortgage Insurance
This is insurance
to the lender against incurring a loss on account of
the borrower's default. Mortgage
insurance is paid to insure the mortgage when the
down payment is less than 20 percent. See:
Private Mortgage Insurance, FHA
Mortgage Insurance. |
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Mortgagee
The lender. |
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Mortgagor
The borrower or homeowner. |
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N |
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Negative Amortization
Occurs when your monthly payments are not large enough
to pay all the interest due on the loan. This unpaid
interest is added to the unpaid balance of the loan.
The danger of negative amortization is that the home
buyer ends up owing more than the original amount
of the loan. |
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Net Effective Income
The borrower's gross income minus federal income tax. |
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Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption
of the mortgage without the prior approval of the
lender. |
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Note
The signed obligation to pay a debt such as a mortgage
note. |
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O |
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Office of Thrift Supervision
(OTS)
The regulatory and supervisory agency for federally
chartered savings institutions. Formally known as Federal
Home Loan Bank Board. |
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One-Year Adjustable Mortgage
A mortgage with an annual rate that changes yearly.
The rate is usually based on movements of a published
index plus a specified margin, chosen by the lender. |
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Origination Fee
The fee charged by a lender to prepare loan documents,
make credit checks, inspect and sometimes appraise
a property; usually computed as a percentage of the
face value of the loan. |
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P |
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Permanent Loan
A long term mortgage,
usually ten years or more. Also called an "end loan". |
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Principal, Interest, Taxes and Insurance
(P.I.T.I.)
Also called monthly housing expense. |
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Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this
fund plus earned interest is gradually used to reduce
mortgage payments. |
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Points
One percent (1%)
of the "total" loan amount
(e.g., two points on a $100,000 mortgage would cost
$2,000). |
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Power of Attorney
A legal document authorizing one person to act on behalf
of another. |
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Prepaid Expenses
Necessary to create an escrow account or to adjust
the seller's existing escrow account. Can include
taxes, hazard insurance, private mortgage insurance
and special assessments. |
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Prepayment
A privilege in a mortgage permitting the borrower to
make payments in advance of their due date. |
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Prepayment Penalty
Fee charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily
imposed) in many states |
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Primary Mortgage Market Lenders
These lenders make mortgage loans directly to borrower's
such as savings and loan associations, commercial
banks, and mortgage companies. These lenders sometimes
sell their mortgages into the secondary mortgage
markets. |
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Principal
The amount of debt, not counting interest, left on
a loan. |
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Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down
payment, lenders will allow a smaller down payment
- as low as 5 percent or less in some cases. With
the smaller down payment loans, however, borrowers
are usually required to carry private mortgage insurance.
Private mortgage insurance will usually require an
initial premium payment and may require an additional
monthly fee depending on you loan's structure. |
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R |
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Rate Lock
Guarantee that the mortgage rate quoted will be good
for a specific number of days from day of the lock. |
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Realtor®
A real estate broker or an associate holding active
membership in a local real estate board affiliated
with the National Association of Realtors. |
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Recision
The cancellation of a contract. With respect to mortgage
refinancing, the law that gives the homeowner three
days to cancel a contract in some cases once it is
signed if the transaction uses equity in the home
as security. |
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Recording Fees
Money paid to the lender for recording a home sale
with the local authorities, thereby making it part
of the public records. |
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Refinance
Obtaining a new mortgage loan on a property already
owned. Often to replace existing loans on the property. |
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Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See: Adjustable
Rate Mortgage. |
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RESPA
Short for the Real Estate Settlement Procedures Act.
RESPA is a federal law that allows consumers to review
information on known or estimated settlement costs
once after the application and once prior to or at
a settlement. The law requires lenders to furnish
the information after application only. |
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Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic
payments to the borrower using the borrower's equity
in the home. |
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S |
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Satisfaction of Mortgage
The document issued
by the mortgagee when the mortgage loan is paid in
full. Also called a "release
of mortgage." |
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Second Mortgage
A mortgage made subsequent to another mortgage and
subordinate to the first one. |
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Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages
they make to obtain more funds to originate more
new loans. It provides liquidity for the lenders. |
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Servicing
All the steps and operations a lender performs to keep
a loan in good standing, such as collection of payments,
payment of taxes, insurance, property inspections
and the like. |
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Settlement/Settlement Costs
See: Closing/Closing
Costs. |
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Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market
interest rate in return for which the lender (or
another investor such as a family member or other
partner) receives a portion of the future appreciation
in the value of the property. May also apply to mortgages
where the borrower shares the monthly principal and
interest payments with another party in exchange
for part of the appreciation. |
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Simple Interest
Interest which is computed only on the principal balance. |
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Survey
A measurement of land, prepared by a registered land
surveyor, showing the location of the land with reference
to known points, its dimensions, and the location
and dimensions of any buildings. |
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Sweat Equity
Equity created by a purchaser performing work on a
property being purchased. |
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T |
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Title
A document that gives evidence of an individual's ownership
of property. |
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Title Insurance
A policy, usually issued by a title insurance company,
which insures a home buyer against errors in the
title search. The cost of the policy is usually a
function of the value of the property, and is often
borne by the purchaser and/or seller. Policies are
also available to protect the lender's interests. |
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Title Search
An examination of municipal records to determine the
legal ownership of property. Usually this is performed
by a title company. |
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Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage
Rate to home buyers shortly after they apply for
the loan. Also known as Regulation Z. |
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Two-Step Mortgage
A mortgage in
which the borrower receives a below-market interest
rate for a specified number of years (most
often seven or 10), and then receives a new interest
rate adjusted (within certain limits) to market conditions
at that time. The lender sometimes has the option
to call the loan due with 30 days notice at the end
of seven or 10 years. Also called a "Super Seven" or "Premier" mortgage. |
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U |
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Underwriting
The decision whether
to make a loan to a potential home buyer based on credit,
employment, assets, and
other factors and the matching of this risk to an
appropriate rate and term or loan amount. |
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Usury
Interest charged in excess of the legal rate established
by law. |
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V |
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VA Loan
A long-term, low or no-down payment loan guaranteed
by the Department of Veterans Affairs. Restricted
to individuals qualified by military service or other
entitlements. |
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VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the
size of the down payment) paid on a VA-backed loan.
On a $75,000 fixed-rate mortgage with no down payment,
this would amount to $1,406 either paid at closing
or added to the amount financed. |
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Variable Rate Mortgage (VRM)
See: Adjustable Rate Mortgage. |
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Verification of Deposit (VOD)
A document signed by the borrower's financial institution
verifying the status and balance of his/her financial
accounts. |
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Verification of Employment (VOE)
A document signed by the borrower's employer verifying
his/her position and salary. |
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W |
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Warehouse Fee
Many mortgage firms must borrow funds on a short term
basis in order to originate loans which are to be
sold later in the secondary mortgage market (or to
investors). When the prime rate of interest is higher
on short term loans than on mortgage loans, the mortgage
firm has an economic loss which is offset by charging
a warehouse fee. |
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Wraparound Mortgage
Results when an existing assumable loan is combined
with a new loan, resulting in an interest rate somewhere
between the old rate and the current market rate.
The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the
first lender after taking the additional amount off
the top. |
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