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A
Adjustable Rate Mortgage (ARM)
A type of mortgage where the principal and interest payments may vary over the life of the loan. This is because the loan is linked to a financial index. The lower initial payments may make it easier for buyers to qualify.
Adjustment Period
The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.
Amortization
The reduction of debt through your payments on principal and interest.
Annual Percentage Rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest and loan fee expressed as a yearly percentage rate. Because all lenders apply the same rule in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.
Appraisal
A professional appraiser is brought in to assess the market value of the home, forming the basis of what the lender is willing to lend.
Appraiser
A person who has been educated and trained to estimate the value of both real property and personal property.
Appreciation
Applies to any increase in property value due to changes in market conditions.
Asset
Any item owned by a person that has monetary value.
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B
Balloon Mortgage
A loan, which is amortized for a longer period than the term of the loan. Usually this refers to 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.
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Bankruptcy
A proceeding in which a person who owes more than their assets is judicially declared to transfer their assets to a trustee thereby relieving their debt.
Basis Point
A basis point is 1/100th of a percentage point.
Before-Tax Income
Income before any taxes have been deducted. Also known as Gross Income.
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C
Cap
The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
Cash Out Refinance
A refinance transaction that allows the borrower to take out additional funds above the existing mortgage amount. This extra cash can be used for closing costs, escrow, home improvement, education, etc.
Closing Costs
All real estate transactions involve a variety of expenses in addition to the purchase price, including such items as points, credit report fees, and title insurance.
Collateral
A type of asset (such as a car or a home) that can be used as a guarantee to pay off a loan. In the event that the terms of the loan are not met, the borrow risks losing the asset.
Condominium
A type of multi-unit property in which each unit owner has title to a unit in a building.
Conversion Clause
A provision in some ARMs that enable home buyers to change an ARM to a fixed rate loan, usually after the first adjustment period.
Convertible ARM
An adjustable rate mortgage that can be converted into a fixed-rate mortgage under specific conditions.
Cost of Index Funds (COFI)
Adjustable-rate mortgage with rates that adjust based on a cost-of-funds index, often the 11th District Cost of Funds..
Credit
An agreement made between a borrower and a lender in which the borrower receives something of value in exchange for the promise of repayment to the lender.
Credit History
A complete record detailing a person's open and repaid debts. This is generally a good indicator of the individual's history of timely debt repayment.
Credit Reports
A report documenting the credit history and current status of a borrower's credit standing.
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D
Debt
An amount that is owed.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Deposit
A sum of money that is given to secure the sale of a property.
Depreciation
A decrease or loss in the value of property.
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
Due-on-Sale Clause
A clause that requires a full payment of a mortgage or deed of trust when the secured property changes ownership.
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E
Earnest Money Deposit
Money given by the potential home buyer to the seller as part of the purchase price to bind a transaction and show serious intent to purchase the property.
Equity
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.
Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
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.
Estate
A total of one's real and personal property at the time of death.
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F
Fair Market Value
The highest price that a potential home buyer would be willing to pay for a property and the lowest price a potential seller would be willing to accept for a property.
Fannie Mae
Federal National Mortgage Association; a federally sponsored secondary market agency that purchases loans made by mortgage lenders.
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, they are generous enough to handle moderately priced homes almost anywhere in the country.
First Mortgage
The primary lien against a property.
Fixed-Rate Mortgage
A type of loan where the interest rate is locked in for the full term of the loan.
Fully Indexed Rate
The maximum interest rate on an ARM that can be reached at the first adjustment and is based on the index on which the ARM loan is tied for adjustment and any applicable margin.
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G
There are no glossary terms for this letter.
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H
Home Equity Line of Credit
A revolving line of credit that is usually secured by a second deed of trust and lasts for the term of the loan. This operates like a credit card in which you can pay down or charge up.
Home Equity Loan
Often referred to as a second mortgage, a home equity loan allows you to borrow against the equity accumulated in your home.
Housing Ratio
The ratio, expressed as a percentage, which results when a borrower's total housing expenses (PITI- Principal, Interest, Taxes, Insurance) are divided by his/her gross monthly income.
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I
Impound Account
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 or escrow account.
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 then used to adjust the interest rate on an adjustable mortgage up or down.
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J
Jumbo Mortgage
A loan, which is larger (more than $275,000 currently) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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K
There are no glossary terms for this letter.
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L
Lien
A legal hold or claim on property as security for a debt or charge.
Lender
The institution, i.e., bank, mortgage company or mortgage broker that is offering the loan.
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
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Mortgage Loan
A loan for the purpose of buying a home. The four basic components are principal, interest, taxes and insurance (PITI).
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N
There are no glossary terms for this letter.
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O
There are no glossary terms for this letter.
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P
Point
s
A point is equal to one percent of your mortgage loan. You may want to consider "buying down" your interest rate by paying discount points up front - especially if you plan to own your home for a long time.
Pre-Approval
A process that mortgage lenders use to determine how much money they would lend you based on a limited review of your financial situation. Lenders issue a pre-approval letter that strengthens your position when bidding on a home, as it shows sellers that you will be able to raise funds needed to purchase.
Prepayment Penalty
A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans.
Pre-qualification
The process of determining your eligibility for a particular loan.
P.I.T.I.
Principal, Interest, Taxes and Insurance. This is usually referred to as the total monthly payment on a loan.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
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 3 percent 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 your loan's structure.
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Q
There are no glossary terms for this letter.
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R
Refinancing
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
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S
There are no glossary terms for this letter.
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T
Title
A document that gives evidence of an individual's ownership of property.
Title Search
Research of public records to determine the history of ownership and loans for a particular piece of real estate.
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U
There are no glossary terms for this letter.
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V
VA Loan
A long-term, low- or no-down payment loan guaranteed by the Department of Veteran Affairs. Restricted to individual's qualified by military service or other entitlements.
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W
There are no glossary terms for this letter.
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X
There are no glossary terms for this letter.
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Y
There are no glossary terms for this letter.
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Z
There are no glossary terms for this letter.
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