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Mortgage Glossary

Additional Principal Payment
By paying an additional principal payment than the scheduled principal amount due,  a borrower can quickly reduce the remaining balance on their loan.

Adjustable-Rate Mortgage (ARM)
A mortgage sometimes called Adjustable Mortgage Loan or Variable-Rate Mortgages with an interest rate that varies during the life of the loan according to movements in the Index Rate that it is tied to; such as the Libor Rate or One Year Treasury Bill rate.

Adjustment Date
The date in which the interest rate will change your adjustable-rate mortgage (ARM).

Adjustment Period
The length of time between adjustment dates for an adjustable-rate mortgage (ARM).

The regular periodic paydown of the the principal balance of your mortgage loan.

Amortization Term
The length of time in months required to completely repay a mortgage loan.

Annual Percentage Rate (APR)
The cost of the loan as a annual rate that includes interest, mortgage insurance, and loan origination fees, allowing the the buyer to compare loans.  The APR should not be confused with the actual note rate.

A written analysis estimating the value of home or property by a qualified appraiser.

Anything owned of value including real estate, personal property, bank accounts, stocks, bonds, mutual funds, etc.

A mortgage that is transferred from one person to another.

A mortgage that can be transferred from seller to the buyer. This requires a credit review of the borrower and the bank may charge a fee for the assumption. If the mortgage loan includes  a "due-on-sale" clause it may not be assumed by the buyer.

Assumption Fee
The charge paid by the purchaser to the lender  when an assumption takes place.

Balloon Mortgage
A mortgage with equal monthly payments amortized over a stated period that also requires  a lump sum payment be paid at the end of a previous specified term.

Balloon Payment
The final payment of a balloon mortgage that is due on the maturity date.

Biweekly Payment Mortgage
A mortgage payment plan which reduces the principal debt every two weeks, instead of the normal monthly payment plan. The biweekly payments are slightly less than half of the monthly payment if the loan is a typical 30-year fixed-rate mortgage. This loan can result in paying your loan off several years earlier and a substantial interest saving over the life of the loan.

Bridge Loan
Also known as "swing loan.", this is a second trust that is collateralized by the borrower's current home which allows the funds to be used to close on a new home before the present home is sold.

An amount of money the seller, builder or buyer pays up front to the lender to reduce the interest rate and monthly payments during the first few years of a loan.

Certificate of Eligibility
A certificate from the Federal government confirming or verifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
The Department of Veterans Affairs (VA) establishes the maximum value and loan amount for a VA mortgage and issues this document to certify the property's value.

Change Frequency
How often, usually stated in months, the payment and interest rate changes in an adjustable-rate mortgage (ARM).

The last step to finalizing the sale of a property. Also called the "settlement.", the purchaser signs the mortgage documents and pays any closing costs

Closing Costs
Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of piece of real estate. Closing costs may include property taxes, origination fee, escrow costs, appraisal fees, and charges for title insurance.

Consumer Reporting Agency (or Bureau)
An company that creates reports used by banks to determine a prospective borrower's credit history. The companies receive data for these reports from credit repositories and other sources.

Credit Report
A report in which an individual's credit history is detailed out and prepared by a credit bureau and used by the bank to determine a loan applicant's credit worthiness.

Mortgage payments that are not paid on a timely basis or to comply with other requirements of the mortgage.

Mortgage payments that are not paid on time.

Down Payment
A portion of  the purchase price of a home or property that is paid in cash and not financed.

Equity is the difference between the market value of the home or real estate and the amount still owed on the mortgage loan.

The deposit of funds or documents into a fiduciary account which are distributed upon the closing of a sale of property or real estate.

Escrow Disbursements
Funds to pay  mortgage and hazard insurance, real estate taxes, or other property expenses as they come due.

Escrow Payment
The part of a borrower's monthly payment held by the lender to pay hazard and mortgage insurance, lease payments, taxes, and other items as they come due.

Fannie Mae
Fannie Mae FNMA (Federal National Mortgage Association) is a governmentally chartered, shareholder-owned company and is the nation's largest supplier of home mortgage funds.

FHA Mortgage
Is a mortgage  insured by the Federal Housing Administration (FHA), known also as a government mortgage. Typically FHA Mortgages require a lower initial down payment.

FICO Score
The most widely used credit score used in mortgage loan underwriting. A number ranging from 300 to 850 that summarizes many types of information on your credit report. The higher the FICO® score, the lower credit risk which typically equates to better loan terms and conditions.

First Mortgage
The primary lien against a home or other property.

Fixed-Rate Mortgage (FRM)
A loan in which the interest rate which fixed during the entire term of the loan.

Housing Expense Ratio
The percentage of a borrower's gross monthly income allotted to pay housing expenses.

HUD-1 Statement
A document that provides an itemized list of funds that are payable at the closing. Items that appear on the statement include loan fees, initial escrow amounts, real estate commissions, and title changes. The total at the bottom of the statement indicate the seller's net proceeds and the buyer's net payment at closing.

Interest Rate Index
The measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The Prime Index Rate is a generally published number or percentage such as the average interest rate or yield on Treasury bills.

Initial Interest Rate
An independent measure of current interest rates which a lender may  use to decide the amount an interest rate or an adjustable rate mortgage will change over time. Commonly used indices are the Prime Rate and the one year Libor Rate.

The payment that the borrower agrees to make to a lender on a regular basis until the loan is paid off.

Insured Mortgage
A mortgage that is insured by private mortgage insurance (MI) or the Federal Housing Administration (FHA).

A fee charged for borrowing money, usually added to each periodic payment.

Interest Rate Ceiling
The maximum interest rate for an adjustable-rate mortgage (ARM), as specified in the mortgage note.

Interest Rate Floor
The minimum interest rate for an adjustable-rate mortgage (ARM), as specified in the mortgage note.

Late Charge
When the payment is made after after the due date, the borrower must pay this penalty fee.

A person's financial obligations which include both long-term and short-term debt, like credit card payments, auto loans, etc.

Lifetime Payment Cap
A limit on the amount that payments can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Lifetime Rate Cap
A limit on the amount that the interest rate can increase or decrease over the life of the for an adjustable-rate mortgage (ARM) loan. See cap.

Line of Credit
An agreement by a bank to extend credit up to a certain dollar amount for a certain period of time.

Liquid Asset
An asset that is easily converted into cash.

A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-Value (LTV) Percentage
The ratio between the principal balance of the loan and the appraised value of the real estate. For example, a $200,000 home with an $100,000 mortgage has an LTV of 50 percent.

Lock-In Period
An interest rate that is promised for a specified period of time by a lender. Many lenders may permit a borrower to lock in a loan rate for up to 30 days or more prior to submitting the loan application.

Percentage points the lender adds to the Prime index rate to calculate the Adjustable Rate Mortgage rate per each adjustment.

The date on which the principal balance of a loan becomes due and payable.

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker
An individual or company that introduces the borrowers to lenders for the purpose of loan origination.

Mortgage Insurance
Insurance against loss caused by a borrower's default on a government or conventional mortgage. This insurance can be issued by a a government agency or private company.

The borrower in a mortgage loan.

Net Worth
The total amount of all of a person's assets, including cash.

Non Liquid Asset
An asset that cannot easily be converted into cash.

A legally binding document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination Fee
A  fee paid to a lender for loan application processing. 

Owner Financing
The financing is provided by the party selling the property.

Payment Change Date
Generally, the payment change date occurs in the month immediately after the adjustment date in an Adjustable Rate Mortgage,

Periodic Payment Cap
The limit on the amount payments can decrease or increase during any one adjustment period.

Periodic Rate Cap
The limit on the amount that the interest rate can decrease or increase during any one adjustment period, regardless of how low or high the index might be.

PITI Reserves
The cash amount that a borrower must have available after paying all closing costs and making a down payment for the home purchase. The Principal, Interest, Taxes, and Insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000 one point means $1,000 to the lender. .

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Determining how much money you will be eligible to borrow before you apply for a mortgage loan.

The borrowed amount or remaining unpaid balance due on a loan.

Principal Balance
The remaining balance of principal on a mortgage that does not include interest or any other charges.

Principal, Interest, Taxes, and Insurance (PITI)
The four parts of a mortgage payment. Principal is the part of the payment that reduces the remaining balance. Interest is the fee charged for borrowing funds. Taxes and insurance refer to the cost of property taxes and homeowner insurance.

Private Mortgage Insurance (PMI)
A product issued by a private insurance mortgage company that provides mortgage insurance to safeguard lenders against loss if a borrower defaults on the loan. Lenders generally require insurance for a loan with a loan-to-value (LTV) ratio in excess of 80%.

Qualifying Ratios
Mathematical formulas which determine if a borrower qualifies for a mortgage, which include 2 separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Rate Lock
A promise or pledge given to by a lender to a borrower guaranteeing a specific interest rate and lender costs for a specific period of time.

Real Estate Settlement Procedures Act (RSEPA)
A protection law for consumers that requires lenders to give borrowers advance notice of all closing costs and fees.

Real Estate Agent®
A individual who is affiliated with the National Association of Realtors and is an active member in the local real estate board.

The documentation in the registrar’s office that publishes the details of a properly executed legal document, such as a mortgage note, a deed, a satisfaction of mortgage or an extension of a mortgage, thereby making it a part of the public record.

A loan which is paid off with the proceeds from a new loan using the same property as collateral.

Secondary Mortgage Market
The Secondary Mortgage Market is where existing mortgages are bought and sold among bankers, lenders and brokers.

The assets that are pledged as collateral for a loan.

An company that manages the borrowers’ escrow accounts and collects principal and interest payments. 

Third-party Origination
When a bank uses another company to process or package a mortgage that it plans to deliver to the secondary mortgage market.

Total Expense Ratio
Total commitments as a percentage of gross monthly income including monthly housing expenses plus other monthly debts such as auto loans, credit cards, etc.

All lenders are required to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges. This a Federal Law created to protect borrowers.

Underwriting entails the analysis of the borrower's credit-worthiness and the quality of the real estate. The process is to evaluate a loan application in order to determine the risk involved for the lender.

VA Mortgage
A mortgage loan guaranteed by the Department of Veterans Affairs (VA). Known also as a government mortgage.

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These materials are not from HUD or FHA and were
not approved by HUD or a government agency.
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