| - A - |
|
| Adjustable Rate Mortgage (ARM) |
A mortgage in which the interest rate is adjusted periodically based on an index. Also
called a variable rate mortgage. |
| Adjustment Interval |
For an adjustable rate mortgage, the time between changes in the interest rate
charged. The most common adjustment intervals are one, three or five years. |
| Annual Percentage Rate (APR) |
The interest rate which reflects the cost of a mortgage as a yearly rate. This rate is
usually higher than the stated loan rate for the mortgage, because it takes into account
points and other charges. |
| Application fee |
The fee charged by the lender to the borrower of applying for a loan. Payment of this
fee does not guarantee that a loan will be approved. Some lenders may apply the cost of
the application fee to certain closing costs. |
| Appraisal |
The determination of property value based on recent sales information of similar
properties. |
| - B - |
|
| Balloon Mortgage |
A loan amortized for 30 years with the interest rate fixed for a portion of that time
(usually 5 or 7 years) at the end of this period the interest will either be reset or loan
paid in full. |
| 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. |
| - C - |
|
| Caps |
A set percentage amount by which an adjustable rate mortgage may adjust each
adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6.
The first number indicated how much a loan may adjust at each adjustment period while the
second number indicates how much a loan may adjust over its lifetime. |
| Closing Costs |
Fees paid by the borrower when property is purchased or refinanced. These typically
include a loan origination fee, discount points, appraisal fee, title search, title
insurance, survey, taxes, deed recording fee, credit report charges, and underwriting
fees. |
| Commitment |
A written letter of agreement detailing the terms and conditions by which the lender
will lend and the borrower will borrow funds to finance a home. |
| Conforming Loan |
A mortgage loan for $300,700 or lower meeting secondary market guidelines. |
| Construction Loan |
A short term loan for funding the cost of construction. The lender advances funds to
the builder as the work progresses, usually over a 6 month period. |
| Conversion |
The right of a borrower to convert an adjustable or balloon loan in to a fixed loan. |
| Credit Rating |
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk
profile. Credit ratings are expressed as letter grades such as A-, B, C+. These ratings
are based on various factors such as a borrower's payment history, foreclosures,
bankruptcies and charge-offs. |
| Credit Report |
A report to a prospective lender on the credit standing of a prospective borrower.
Used to help determine creditworthiness. Information regarding late payments, defaults, or
bankruptcies. |
| - D - |
|
| Deed |
A legal document which affects the transfer of ownership of real estate from the
seller to the buyer. |
| Default |
The failure to make payments on a loan. |
| Down Payment |
Money paid by a buyer from his own funds, as opposed to that portion of the purchase
price which is financed. |
| - E - |
|
| Equity |
The difference between the current market value of a property and the principal
balance of all outstanding loans. |
| - F - |
|
| Finance Charge |
The total dollar amount your loan will cost you. It includes all interest payments for
the life of the loan, any interest paid at closing, your origination fee and any other
charges paid to the lender and/or broker. Appraisal, credit report and title search fees
are not included in the finance charge calculation. |
| Fixed-Rate Mortgage |
A mortgage where the interest rate does not change for the life of the loan. |
| Float |
Between the time of application and closing, a borrower may choose to bet on interest
rates decreasing by electing to float. Floating is essentially choosing not to lock the
interest rate. |
| Foreclosure |
A legal procedure in which real estate is sold by the lender to pay a defaulting
borrower's debt. |
| - G - |
|
| Good Faith Estimate |
An estimate of charges which a borrower is likely to incur in connection with a loan
closing. |
| Gross Monthly Income |
The total amount the borrower earns per month, not counting any taxes or expenses.
Often used in calculations to determine whether a borrower qualifies for a particular
loan. |
| - H - |
|
| Hazard Insurance |
A form of insurance in which the insurance company protects the insured from certain
losses, such as fire, vandalism, storms and certain other natural causes. |
| Housing Ratio |
The ratio of the monthly housing payment to total gross monthly income. Also called
Payment-to-Income Ratio or Front-End Ratio. |
| - I - |
|
| Index |
A published interest rate not controlled by the lender to which the interest rate on
an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it
may increase or decrease. The typical index values quoted are as follows:
- SYMBOL
|
- DESCRIPTION
|
- 1YTB
|
- One Year Treasury Bill Yield
|
- 3YTB
|
- Three Year Treasury Bill Yield
|
- 6mLIB
|
- Six Month LIBOR
|
- 1LIB
|
- One Year LIBOR
|
|
| Interest Rate |
The percentage of an amount of money which is paid for its use for a specified time. |
| - J - |
|
| Jumbo Loan |
A loan above $300,700. These limits are 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. |
| - L - |
|
| Lender |
The bank, mortgage company, or mortgage broker offering the loan. Many institutions
only "originate" loans and then resell the obligation to third parties. |
| Life of Loan Cap |
The maximum interest rate that can be charged during the life of the loan. Also called
Lifetime Cap. This value is often expressed as an increment above the initial loan rate.
For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime |
| Loan-To-Value Ratio |
The relationship between the amount of the mortgage loan and the appraised value of
the property expressed as a percentage. A LTV ratio of 90 means that a borrower is
borrowing 90% of the value of the property and paying 10% as a down payment. For
purchases, the value of the property is assumed to be the purchase price, for refinances
the value is determined by an appraisal. |
| Lock noun |
The period, expressed in days, during which a lender will guarantee a rate. Some
lenders will lock rates at the time of application while others will allow the borrower to
lock the rate after the application is taken. |
| Lock verb |
The act of committing to a mortgage rate. This action, taken by a borrower some time
between application and the closing dates, is sometimes accompanied by a payment by the
borrower to the lender. Opposite of float. |
| - M - |
|
| Margin |
The amount a lender adds to the quoted index rate for an adjustable rate loan to
determine the new interest rate. |
| Monthly Housing Expense |
Total principal, interest, taxes, and insurance paid by the borrower on a monthly
basis. Used with gross income to determine affordability. |
| Mortgagee |
The lender. |
| Mortgagor |
The borrower. |
| - O - |
|
| Origination Fee |
The fee imposed by a lender to cover certain processing expenses in connection with
making a loan. Usually a percentage of the amount loaned. Often called a point. One point
= 1% of loan amount. |
| - P - |
|
| Points |
Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1
percent of the loan amount (e.g. 1.5 points on a $100,000 mortgage would cost the borrower
$1,500). Generally, by paying more points at closing, the borrower reduces the interest
rate of his loan and thus future monthly payments. |
| Prepaids |
Expenses such as taxes, insurance and assessments which are paid in advance of their
due date and which must be paid by the buyer on a prorated basis at closing. |
| Prepayment |
The ability to pay off the remaining balance of a loan. |
| Prepayment Penalty |
Lenders who impose prepayment penalties will charge borrowers a fee if they wish to
repay part or all of the loan in advance to the regular schedule. |
| Principal |
The amount of debt, not counting interest, left on a loan. |
| Private Mortgage Insurance (PMI) |
Paid by a borrower to protect the lender in case of default. PMI is typically charged
to the borrower when the Loan-To-Value Ratio is greater than 80% |
| - Q - |
|
| Qualifying Ratio |
The ratio of the borrower's fixed monthly expenses to his gross monthly income. Ratios
are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would
be the Back-End Ratio. The Front-End Ratio is the percentage of a borrower's gross
monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal
Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case
of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments
were 28% or less than the borrower's gross monthly income.
The Back-End Ratio is the percentage of a borrower's gross monthly income that would
cover the cost of PITI plus any other monthly debt payments like car of personal loans and
credit card debt.
Please note that qualifying ratios are only a rough guideline in determining a
potential borrower's credit-worthiness. Many factors such as excellent or poor credit
history, amount of down payment, and size of loan will influence the decision to approve
or disapprove a particular loan. |
| - S - |
|
| Settlement Costs |
See Closing Costs |
| - T - |
|
| Tax Lien |
A claim against real estate for the amount of its unpaid taxes |
| Title |
A document that gives evidence of an individual's ownership of property. |
| Title Insurance |
Insurance against loss resulting form defects of title to a specifically described
parcel of real estate. |
| Title Search |
An examination of city, town, or county records to determine the legal ownership of
real estate. |
| Total Debt Ratio |
Monthly debt and housing payments divided by gross monthly income. Also known as
Back-End Ratio. |
| - V - |
|
| Variable Rate Mortgage |
See Adjustable Rate Mortgage |
Loan
Glossary