Mortgage Terms
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Acquisition cost
- the total cost of acquiring a property, The total purchase price,
including items such as
title, escrow, lenders' fees, and taxes
Addendum rider
- an addition to the standard contract (e.g., the lender attaches the
alienation clause to the loan via an addendum)
Adjustable-rate
mortgage (ARM)
- A mortgage tied to an index that adjusts based on fluctuations in the
economy. Also called a variable rate mortgage.
Adjustment period-
the period in which an ARM adjusts (e.g., monthly, yearly, 3, 5, 7, or 10
years).
Alienation clause
(due-on-sale clause)
- A type of acceleration clause in a loan, calling for payment of the entire
principal balance in full, triggered by the sale or transfer of a property.
Amortization
- paying a debt in full through periodic payments, including principal and
interest.
Application Fee
- Some lender
may charge an application fee to apply for a loan. Payment of this fee does
not guarantee that your loan will be approved. Pyramid Financial NEVER
charges an application fee.
Appraisal-
An estimate of value usually obtained through sales comparables.
ARM
- see adjustable rate mortgage
Assignment
- The transfer of rights to pay an obligation from one party to another,
with the original party remaining liable for the debt, should the first
party default.
Assumption
– A new party takes over the obligation under an existing agreement, usually
done for a fee.
Balloon payment
- a principal payment coming due before the loan is fully amortized.
Biweekly mortgage
- A mortgage under which one-half of the monthly payment is payable every
two weeks, giving the benefit of two extra payments a year; this allows a 30
year loan to be paid off in approximately 18 years.
Broker
- A company, such as Pyramid Financial, that
assists in arranging funding or negotiating contracts with lenders for a
client, but does not actually loan the money.
Cap
- a ceiling, found with ARM loans, expressing the maximum rate change per
adjustment period.
Cash reserves
- the amount of buyer's liquid cash remaining after making the down payment
and paying closing costs.
Chattel
- Personal property
Closing Costs
- Fees paid by the borrower when property is purchased or refinanced. These
typically include a loan origination fee, appraisal fee, title search, title
insurance, taxes, deed recording fee, and credit report charges. There are
several options for managing closing costs, talk to your loan officer with
specific questions.
Collateral agreement
- a document that provides additional security for a debt.
Commitment period
- The period, in which a lenders approval is valid and binding, provided the
borrower meets all the lenders conditions.
Conforming Loan
- A standard mortgage not associated with FHA or VA lending sources.
Construction
Loan
- A short-term loan, in which the lender advances funds to the builder as
the work progresses
Convertible ARM
- An ARM containing a clause allowing the rate to become fixed during the
loan (e.g., one year, three years, or within five years of the 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+, or C-. These ratings are based on various factors such
as a borrower's payment history, foreclosures, bankruptcies and charge-offs.
Different lenders may assign different grades to the same borrower.
Credit Score
– A number from 450 to 850 derived from various financial factors in the
borrower's credit history to determine the risk of lending. (Usually called
a FICO score- named for the company Fair, Isaac, & Company)
Debt ratios
- the comparison of a buyer's housing costs to their gross income (housing
ratio), and the comparison of a buyer's long-term debt, including housing
and monthly debt (total debt ratio). This is a percentage calculation and
varies based on loan programs.
Deed of trust
(trust deed) - A document used to secure the collateral in financing the
property; title is transferred to the trustee, with payments made to the
beneficiary by the trust or.
Discount
points (points) - A point is equal to one percent of the loan amount. You can
purchase points to lower your interest rate, speak with your loan officer.
Down Payment
- Money paid by a buyer from his own funds, as opposed to that portion of
the purchase price which is financed.
Equity
- The difference between what a property is worth and the loan balance.
Escrow
Account - An impartial holding of monies used to satisfy property tax
and home owners insurance obligations.
Fannie-Mae
Foundation - a nonprofit affiliated with FNMA, designed to educate consumers
on home affordability and home buying options.
Federal Home
Loan Mortgage Corporation (FHLMC) - Called Freddie Mac; a part of the secondary
market that provides liquidity for the originators of mortgages.
Federal
National Mortgage Association (FNMA) - Also called Fannie Mae, a private mortgage
buyer that provides liquidity in the mortgage marketplace.
Fixed-rate
mortgage
- A loan that’s interest rate remains the same for the entire term of the
loan.
FICO
- The Fair, Isaac, & Company credit scoring system used by most of the
lenders to determine a borrower's ability to repay a mortgage. The scoring
ranges from 450-850, with the lower the score, the higher the risk.
Float
- Between the time of application and closing the loan, 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.
Good Faith
Estimate
– This is the form we provide to the borrower showing the estimated closing
costs that are likely to be incurred in the acquisition of a new mortgage
Gross Monthly Income - The total amount the borrower earns per month, not counting any
taxes or expenses. The Gross Monthly Income is used to determine a debt to
income ratio for a borrower.
Hazard
Insurance
- A form of insurance in which the insurance company protects the insured
from certain losses, such as fire, vandalism, storms and other natural
causes.
Income
qualifications
- the amount of gross income required by the lender
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 may increase or decrease.
Interest
only
- Payments received are applied to accrued interest only and not to a
principal reduction
Interest Rate
- The percentage of an amount of money which is paid for its use for a
specified time.
Interest rate
cap
- The maximum interest rate an ARM can adjust to over the term of the loan.
Jumbo Loan
- A loan for an amount higher than the 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.
Lease option
- a lease with an option to buy usually the decision rests with leaser.
Lender
- The bank, mortgage company, or mortgage broker offering the loan. Many
institutions only "originate" loans and then resell the obligation to third
parties.
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 the application and the closing dates, is sometimes
accompanied by a payment by the borrower to the lender.
Margin
- The amount a lender adds to the quoted index rate for an adjustable rate
loan to determine the new interest rate.
Mortgagee
- The lender.
Mortgagor
- The borrower.
Negative
amortization - an interest payment shortfall, which is added back into the
principal of the loan.
Note rate
- the rate of interest shown on the face of the promissory note; the rate of
interest charged on an obligation.
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.
Owner occupancy
- Occupied by the buyer of the property; the best rates are offered on this
type of loan, as the risk is less on a primary residence.
Payment cap
- the maximum amount the payment can adjust at any one time, as to avoid
payment shock.
PITI
- Principle, interest, property taxes, and insurance.
Points
- Prepaid interest paid by the borrower to the lender. A point is equal to 1
% of the loan amount. By purchasing points, the borrower reduces the
interest rate of his loan and thus future monthly payments. Talk to your
loan officer with questions about points.
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 repay part or their entire loan in advance of 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%.
Release clause
- a clause allowing a portion of the real estate to be released as security
from the loan.
Secondary market
- Comprised of FNMA, GNMA, and FHLMC, which provide liquidity for the
primary market of mortgage loans
Security
document
- a legal document that creates a lien against a property as security for
repayment of a debt.
Seller
financing
- the borrower uses a portion of the seller's equity in the property in
exchange for an interest payment.
Tax Lien
- A claim made against real estate for unpaid taxes.
Title
- A document that gives evidence of an individual's ownership of property.
Title Insurance
- Insurance against loss resulting from defects of title on a specifically
described parcel of real estate.
Variable Rate Mortgage
- See Adjustable Rate Mortgage
