mortgages | calculator | rates | glossary | types

(A)

Adjustable rate mortgage: A mortgage on which the interest rate, after an initial period, can be changed by the lender. Most ARM loans base rate changes on a pre-selected interest rate index. The lender does not control this rate index.

Amortization: The repayment of principal from mortgage payments that exceed the interest due. The amount of payment above the interest due is applied to principal and reduces the loan balance. If the payment is less than the interest due, the result is negative amortization.

Application fee: A fee that some lenders charge to accept an application.

APR: The Annual Percentage Rate is a comprehensive measure of credit cost to the borrower that takes account of the interest rate, points and flat dollar charges. It is calculated on the assumption that the loan will run to term, and is therefore potentially deceptive for borrowers with short term pay-off plans.

Approval: The lender has approved the borrower for the loan. Borrower has met the lenders standards and will receive the applied for loan.

Assumable mortgage: A mortgage contract that allows a creditworthy buyer to assume the loan.

(B)

Balance: The amount of the original loan remaining to be paid.

Balloon payment: The balloon is the amount due on a mortgage which is payable in full before the full term of the loan.

Blanket mortgage: A single mortgage that covers two or more properties.

Buy down: Money advanced by an individual to lower mortgage payments for a period of time.

(C)

Cap: The maximum interest rate increase allowable on an adjustable rate mortgage.

Closing costs: Fees paid at the time of closing, in addition to the down payment.

Conventional mortgage: A loan that is not insured or guaranteed by the government.

Conforming mortgage: A loan eligible for purchase by the two major Federal agencies that buy mortgages. (Freddie Mac &/or Fannie Mae)

Conversion option: The option to convert an ARM to a fixed rate loan at some point during the loan’s life.

(D)

Debt-to-Income ratio: The percentage relationship between an individual’s monthly income and debt expense. Often used as a loan qualification assessment.

Default: Failure to meet an obligation when due.

Due-on-Sale clause: A loan stipulation that if the property is sold the loan balance must be repaid to the lender.

(E)

Encumbrance: A claim, lien or liability that has been attached to the title of a property.

Equity: The difference between the value of a home and the outstanding loan balance.

(F)

Fees: The sum of all upfront cash payments required by the lender as part of the charge for the loan.

FHA loan: Federal Housing Authority insures mortgages on residential property with a low down payment.

Fixed rate mortgage (FRM): The interest rate remains the same for the life of the loan.

First mortgage: The first-priority claim against a property in the event the borrower defaults.

Foreclosure: The procedure where the lender reacquires property after a default.

Fully amortized mortgage: The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan, will pay off the loan over its remaining life.

Freddie Mac: Quasi government agency that pools mortgages and sells participation agreements.

(G)

Good faith estimate: The list of settlement charges that the lender is obliged to provide the borrower within three business days of receiving the loan application.

Graduated payment mortgage (GPM): A mortgage on which the payment rises by a constant amount for a specified number of periods, after which it levels out over the remaining life of the loan.

(H)

Housing expense: The sum of mortgage payment, hazard insurance, property taxes and homeowner association fees.

Housing expense ratio: The ratio of housing expense to borrower’s income.

(I)

Index: The guide for rate changes which lenders use to decide how much the annual percentage rate will change over time.

Interest rate: The periodic change, expressed as a percentage, for use of credit.

Initial interest rate: The interest rate that is fixed for some specified number of months at the beginning of a mortgage.

Interest rate adjustment period: The frequency of rate adjustments on an ARM after the initial rate period is over.

Interest rate ceiling: The highest interest rate possible under an ARM contract. This is the same as the "Lifetime Cap."

(J)

Jumbo mortgage: A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac.

Junk fees: Fees charged by lender for a wide variety of services, expressed in dollars rather than as a percentage of the loan amount.

(L)

Lien: A legal claim on property used as security for a debt.

Loan-to-value ratio: The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV.

Lock: An option exercised by the borrower, at the time of loan application or later, to "lock in" the rates and points prevailing in the market at that time.

(M)

Margin: The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.

Maturity: The period until the last payment is due.

Mortgage insurance: Insurance provided the lender against loss on a mortgage in the event of borrower default.

(N)

Negative amortization: A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called deferred interest.

Non-conforming mortgage: A mortgage that does not meet the purchase requirements of the two Federal agencies.

(O)

Origination fee: An upfront fee charged by some lenders, expressed as a percent of the loan amount.

(P)

Payment increase cap: The maximum percentage increase in the payment on an ARM at a payment adjustment date.

Payment decrease cap: The maximum percentage decrease in the payment on an ARM at a payment adjustment date.

PITI: An acronym for payments to a lender that cover principle, interest, taxes and insurance on a property.

PMI (Private Mortgage Insurance): Protects lender in case borrower defaults.

Points: Up-front charge for making the loan (1 pint = 1% of the loan amount).

Prepayment Penalty: A fee paid by the borrower, if loan is paid off early.

Pre-approval: A commitment by a lender to make a loan prior to the identification of a specific property.

Principal: The balance still owed or the amount of money borrowed on a loan.

Processing: What the lender does with your loan application.

Promissory Note: Document signed and given to the lender by the borrower. It explains what is owed and how it will be paid.

(R)

Rate Cap: A limit on how much the variable interest can increase during the life of the loan.

Reverse Mortgage: The lender makes payments to the borrower ( a form of negative amortization).

(S)

Second mortgage: The second priority claim against a property in the event that the borrower defaults on the loan.

Secondary Mortgage: The buying and selling of mortgages after closing.

Simple interest mortgage: A mortgage on which interest is calculated daily based on the balance at the time of the last payment.

(T)

Total expense ratio: The ratio of housing expense plus current debt service payments to borrower income.

(U)

Underwriting requirements: the standards imposed by lenders in determining whether a borrower qualifies for a loan.

(V)

VA Mortgage: A mortgage on which the lender is insured against loss by the Veterans Administration.

Variable Rate Mortgage: A mortgage loan in which the interest rate may increase or decrease at specific intervals within certain limits, based on an economic indicator.

(W)

Wrap-around Mortgage: A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage.