ANNUAL PERCENTAGE RATE
The actual finance charge for a loan, including points, fees and the annual interest rate.
AMORTIZATION
A method of equalizing the monthly mortgage payment over the life of the loan by adjusting the proportion of principal to interest over time. At first, the interest payment is high and the principal payment is low. At the end of the loan, interest payments are low and principal payments are high.
APPRAISAL
A professional opinion as to the value of a home and property.
ARM (Adjustable Rate Mortgage)
Interest rate are periodically adjusted up or down over the life of the loan based on a specified financial index. The plan may have rate or interest "caps" that limit the amount your interest rate may change. An ARM generally carries a lower initial rate than fixed-rate loans because it moves with the market.
ASSESSED VALUE
The value placed on a property by a municipality for the purpose of levying taxes. The municipality’s assessed value may greatly differ from the appraised value.
ASSUMABLE
Describes a mortgage that can be assumed or taken over by a new owner if you decide to sell your home. Be sure to check with your lender first to make sure the new buyer is an acceptable credit risk. Not all mortgages are assumable.
BALLOON PAYMENT
A large principal payment due all at once at the pre-determined end date of some loans.
BUYDOWN
A sum of money sufficient to "buy" or obtain a lower than market interest rate from a lender. It can be viewed as prepaid interest in exchange for lower monthly payments.
CAP
A limit on how much an adjustable interest rate can change in an Adjustable Rate Mortgage loan.
CERTIFICATE OF TITLE
A notarized document signed by a title examiner certifying that a seller’s ownership documents are recorded.
CLOSING
The legal transfer of the deed to a property from the seller to the buyer signifying the change in ownership.
CLOSING (OR SETTLEMENT) COSTS
All costs, other than the loan origination fee, paid by the seller or buyer when the loan is finalized. This may include such items as title search and examiner fees, lawyer’s fees, title insurance premiums, deed recording fee and transfer tax.
COMMISSION
A percentage of the real estate transaction paid to an agent or broker for their services.
COMPARATIVE MARKET ANALYSIS (CMA)
A survey of comparable homes recently sold or currently on the market used to help determine a fair market value for a seller’s property.
CONTINGENCY
A condition put in a contract that must be met for the contract to be binding.
CONVENTIONAL LOAN
Any loan not insured or guaranteed by a government agency. (Refers to loans made by institutional lenders.)
CONVERTIBLE
Means the ARM loan can be changed to a conventional fixed-rate loan. Conversion often involves a fee. Not all ARM loans are convertible.
DEED
A legal document that conveys ownership of a property from seller to buyer.
DISCLOSURE STATEMENT
Detailed explanation of the specific loan for which you are applying. It is a vehicle used to satisfy questions about the conditions of the mortgage contract.
DISCOUNT POINTS
The fees paid to buy down the interest rate when obtaining a loan. Each point is one percent of the total loan amount.
DOWN PAYMENT
A percentage of the purchase price that a buyer must pay to the seller and which may not be borrowed from a financial institution.
DUE-ON-SALE
A clause in a mortgage providing that if the mortgagee sells, transfers, or in any way encumbers the property, the mortgagor has the right to implement the acceleration clause, making the balance of the obligation due.
ESCROW
A third party, acting as the agent for the buyer and seller, carries out instructions of both and assumes the responsibilities of handling all paperwork and disbursement of funds.
FHLMC
The Federal Home Loan Mortgage Corporation, or "Freddie Mac," is a government agency that performs a function similar to that of FNMA ("Fannie Mae"). FHLMC issues its own mortgage-backed securities, which are backed by the conventional mortgages it purchases. While FNMA emphasizes the purchase of mortgage loans, FHLMC also actively sells the loans from its portfolio, thus acting as a conduit for mortgage investments.
FIXTURE
Something that is permanently attached to a property and belongs with the property when it is sold, such as a light fixture, air conditioner etc.
GNMA
The Government National Mortgage Association, or "Ginnie Mae," is a government agency supervised by HUD. At the time of its creation GNMA, in effect, replaced FNMA when FNMA became privately owned. A primary function of GNMA is to promote investment by guaranteeing the payment of principal and interest on FHA and VA mortgages. It carries out this function through its mortgage-backed securities program.
HUD
Housing and Urban Development Agency.
INDEX
The interest rate indicator used to determine changes in the mortgage rate. An index reflects current economic conditions and is published regularly for use by lenders. Popular indexes are Treasury bills and Treasury securities.
INITIAL RATE
The interest rate at which your loan begins.
INTEREST ADJUSTMENT
Prepaid daily interest to the end of the month from date of closing so that all future payments will fall on the first of each month.
LIEN
A debt or security claim on property that must be paid prior to sale.
MARGIN
The amount or percentage that is added to the index at each time of adjustment to determine the new interest rate paid by the borrower. The margin remains the same throughout the life of the loan. The permanent formula for rate adjustment is index + margin = borrower’s rate.
MARKET PRICE
The actual price at which a property is sold.
MARKET VALUE
The price as established by home condition, economic conditions, location, and general trends.
MULTIPLE LISTING SERVICE (MLS)
A system that provides members detailed information about most properties for sale in a given market.
NEGATIVE AMORTIZATION
A loan payment schedule that increases rather than decreases the outstanding principal balance, because the payments do not cover the full amount of interest due (deferred interest). The unpaid interest is then added to the principal.
NOTE RATE
The interest rate recorded on the legal document that describes how your loan will be repaid. In the event of a buydown, for example, the rate you actually pay will differ from the note rate.
ORIGINATION FEE
An application fee for processing a proposed mortgage loan.
PAYMENT CAP
A limit on the amount or percentage that a payment can change at any one time of adjustment. Not all loans have a payment cap.
PITI
An acronym for Principle; Interest; Taxes & Insurance, which forms the basis for a monthly mortgage payment.
PMI (Private Mortgage Insurance)
Insurance written by a private company protecting the lender against loss due to a mortgage default. It is known as MIP for FHA loans.
POINT
Synonym for one percent. "Points" may be charged as part of a mortgage, in addition to interest and fees.
PREPAYMENT PENALTY
A fee paid by a borrower who pays off the loan before it is due.
PRINCIPAL
The amount of money borrowed, for which interest is charged. Also, one of the parties to a contract.
PRORATE
To divide or assess proportionately.
QUALIFYING RATE
The interest rate at which you can afford payments and thereby qualify for a loan. This is determined by the lending agency.
RATE CAP
A limit on the interest rate which determines loan payments. Rate caps do not create deferred interest. They are offered less frequently than payment caps because they involve a greater risk for lenders.
RATE LOCK-IN
An interest rate which is guaranteed to remain the same from the time of your loan application through the time your loan is approved. Whether your loan’s index rises or falls during that period, you pay the rate which was current at the time of application. Not all loan applications include a rate lock-in clause.
RESERVE FUND
Monies set aside for future payment of items (taxes, insurance, PMI, etc.), sometimes referred to an impound account.
SECOND LOAN
An additional loan imposed on top of the first mortgage when the buyer needs more money. The risk to the lender is greater because it is subordinate to the first loan; therefore, the interest rate is higher and conditions more stringent. Typically "carried" by the seller when the buyer cannot qualify for the entire loan amount.
SETTLEMENT
All financial transactions required to make the contract final.
TERM OF LOAN
The length of time you have to pay back your loan. The term of most loans is 30 years.
TIME OF ADJUSTMENT
Defines how often the mortgage interest rate and/or monthly payment can be changed. Once the rate and payment are set they cannot be altered until the next time of adjustment. Interest rate and payment adjustments can be scheduled to change at different times. With some ARMs the interest rate changes more often than the size of the monthly payment.
TITLE
A document that indicates ownership of a specific property.
Title Search
A detailed examination of the entire document history of a property title to make sure that there are no legal encumbrances.
WRAPAROUND
The seller keeps the original low-rate mortgage. The buyer makes payments to the seller, who forwards a portion to the lender holding the original mortgage.