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Mortgages with a one time rate adjustment after seven years and five
years respectively.
Adjustable-rate mortgages in which rate is fixed for three-year,
five-year, seven-year and 10-year periods, respectively, but may
adjust annually after that.
The right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
Is a mortgage in which the interest rate is adjusted periodically
based on a pre-selected index. Also sometimes known as the renegotiable
rate mortgage, the variable rate mortgage or the Canadian rollover
mortgage.
The cost of a property plus the value of any capital expenditures
for improvements to the property minus any depreciation taken.
The date that the interest rate changes on an adjustable-rate mortgage
(ARM).
On an adjustable rate mortgage, the time between changes in the
interest rate and/or monthly payment, typically one, three or five
years depending on the index.
The period elapsing between adjustment dates for an adjustable-rate
mortgage (ARM).
An analysis of a buyers ability to afford the purchase of a home.
Reviews income, liabilities, and available funds, and considers
the type of mortgage you plan to use, the area where you want to
purchase a home, and the closing costs that are likely.
Means loan payment by equal periodic payment calculated to pay off
the debt at the end of a fixed period, including accrued interest
on the outstanding balance.
The length of time required to amortize the mortgage loan expressed
as a number of months. For example, 360 months is the amortization
term for a 30-year fixed-rate mortgage.
APR is a measurement of the full cost of a loan including interest
and loan fees expressed as a yearly percentage rate. Because all
lenders apply the same rules in calculating the annual percentage
rate, it provides consumers with a good basis for comparing the
cost of loans.
An estimate of the value of property, made by a qualified professional
called an "appraiser".
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
A local tax levied against a property for a specific purpose, such
as a sewer or street lights.
The transfer of a mortgage from one person to another.
An assumable mortgage can be transferred from the seller to the
new buyer. Generally requires a credit review of the new borrower
and lenders may charge a fee for the assumption. If a mortgage contains
a due-on-sale clause, it may not be assumed by a new buyer.
The agreement between buyer and seller where the buyer takes over
the payments on an existing mortgage from the seller. Assuming a
loan can usually save the buyer money since this
is an existing mortgage debt, unlike a new mortgage where closing
cost and new, probably higher, market-rate interest charges will
apply.
The fee paid to a lender (usually by the purchaser of real property)
when an assumption takes place.
A loan which is amortized for a longer period than the term of the
loan. Usually this refers to a thirty-year amortization and a five
year term. At the end of the term of the loan, the remaining outstanding
principal on the loan is due. This final payment is known as a balloon
payment.
The final lump sum paid at the maturity date of a balloon mortgage.
A plan to reduce the debt every two weeks (instead of the standard
monthly payment schedule). The 26 (or possibly 27) biweekly payments
are each equal to one-half of the monthly payment required if the
loan were a standard 30-year fixed-rate mortgage. The result for
the borrower is a substantial savings in interest.
A mortgage covering at least two pieces of real estate as security
for the same mortgage.
One who applies for and receives a loan in the form of a mortgage
with the intention of repaying the loan in full.
A second trust that is collateralized by the borrower's present
home allowing the proceeds to be used to close on a new house before
the present home is sold. Also known as "swing loan."
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.
When the lender and/or the home builder subsidized the mortgage
by lowering the interest rate during the first few years of the
loan. While the payments are initially low, they will increase when
the subsidy expires.
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage payment,
maintenance, utilities, etc.).
Consumer safeguards which limit the amount the interest rate on
an adjustable rate mortgage which may change per year and/or the
life of the loan.
Consumer safeguards which limit the amount monthly payments on an
adjustable rate mortgage may change.
The document given to qualified veterans which entitles them to
VA guaranteed loans for homes, business and mobile homes. Certificates
of eligibility may be obtained by sending form DD-214 (Separation
Paper) to the local VA office with VA form 1880 (request for Certificate
of Eligibility)
An appraisal issued by the Veterans Administration showing the property's
current market value
The document given to veterans or reservists who have served 90
days of continuous active duty (including training time) It may
be obtained by sending DD 214 to the local VA office with form 26-8261a
(request for certificate of veteran status. This document enables
veterans to obtain lower down payments on certain FHA insured loans).
The frequency (in months) of payment and/or interest rate changes
in an adjustable-rate mortgage (ARM).
The meeting between the buyer, seller and lender or their agents
where the property and funds legally change hands, also called settlement.
Closing costs usually include an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, deed recording
fee, credit report charge and other costs assessed at settlement.
The cost of closing usually are about 3 percent to 6 percent of
the mortgage amount.
These are expenses - over and above the price of the property- that
are incurred by buyers and sellers when transferring ownership of
a property. Closing costs normally include an origination fee, property
taxes, charges for title insurance and escrow costs, appraisal fees,
etc. Closing costs will vary according to the area country and the
lenders used.
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds
index, often the 11th District Cost of Funds.
A short term interim loan to pay for the construction of buildings
or homes. These are usually designed to provide periodic disbursements
to the builder as he or she progresses.
An organization that handles the preparation of reports used by
lenders to determine a potential borrower's credit history. The
agency gets data for these reports from a credit repository and
from other sources.
A contract between purchaser and a seller of real estate to convey
title after certain conditions have been met. It is a form of installment
sale.
A mortgage not insured by FHA or guaranteed by the VA.
A provision in an ARM allowing the loan to be converted to a fixed-rate
at some point during the term. Usually conversion is allowed at
the end of the first adjustment period. The conversion feature may
cost extra.
A report documenting the credit history and current status of a
borrower's credit standing.
A credit risk score is a statistical summary of the information
contained in a consumer's credit report. The most well known type
of credit risk score is the Fair Isaac or FICO score. This form
of credit scoring is a mathematical summary calculation that assigns
numerical values to various pieces of information in the credit
report. The overall credit risk score is highly relative in the
credit underwriting process for a mortgage loan.
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his
or her gross monthly income. See housing expenses-to-income ratio.
In many states, this document is used in place of a mortgage to
secure the payment of a note.
Failure to meet legal obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.
When a mortgage is written with a monthly payment that is less than
required to satisfy the note rate, the unpaid interest is deferred
by adding it to the loan balance. See negative amortization.
Failure to make payments on time. This can lead to foreclosure.
An independent agency of the federal government which guarantees
long-term, low-or no-down payment mortgages to eligible veterans.
see point
Money paid to make up the difference between the purchase price
and the mortgage amount.
A provision in a mortgage or deed of trust that allows the lender
to demand immediate payment of the balance of the mortgage if the
mortgage holder sells the home.
Money given by a buyer to a seller as part of the purchase price
to bind a transaction or assure payment.
The VA home loan benefit is called an entitlement (i.e. entitlement
for a VA guaranteed home loan). This is also known as eligibility.
Is a federal law that requires lenders and other creditors to make
credit equally available without discrimination based on race, color,
religion, national origin, age, sex, marital status or receipt of
income from public assistance programs.
The difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has
in real estate over and above the obligation against the property.
An account held by the lender into which the home buyer pays money
for tax or insurance payments. Also earnest deposits held pending
loan closing.
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
The part of a mortgagor’s monthly payment that is held by the
servicer to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due.
see Federal National Mortgage Association.
Provides financing to farmers and other qualified borrowers who
are unable to obtain loans elsewhere.
The former name for the regulatory and supervisory agency for federally
chartered savings institutions. Agency is now called the Office
of Thrift Supervision
Is a quasi-governmental agency that purchases conventional mortgage
from insured depository institutions and HUD-approved mortgage bankers.
A division of the Department of Housing and Urban Development. Its
main activity is the insuring of residential mortgage loans made
by private lenders. FHA also sets standards for underwriting mortgages.
A tax-paying corporation created by Congress that purchases and
sells conventional residential mortgages as well as those insured
by FHA or guaranteed by VA. This institution, which provides funds
for one in seven mortgages, makes mortgage money more available
and more affordable.
A loan insured by the Federal Housing Administration open to all
qualified home purchasers. While there are limits to the size of
FHA loans ($155,250 as of 1/1/96), they are generous enough to handle
moderately-priced homes almost anywhere in the country.
Requires a fee (up to 2.25 percent of the loan amount) paid at closing
to insure the loan with FHA. In addition, FHA mortgage insurance
requires an annual fee of up to 0.5 percent of the current loan
amount, paid in monthly installments. The lower the down payment,
the more years the fee must be paid.
The Federal Home Loan Mortgage Corporation provides a secondary
market for savings and loans by purchasing their conventional loans.
Also known as "Freddie Mac."
A promise by FHA to insure a mortgage loan for a specified property
and borrower. A promise from a lender to make a mortgage loan.
The primary lien against a property.
The monthly payment due on a mortgage loan including payment of
both principal and interest.
The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest accrual
rate, over the amortization term.
The Federal National Mortgage Association is a secondary mortgage
institution which is the largest single holder of home mortgages
in the United States. FNMA buys VA, FHA, and conventional mortgages
from primary lenders. Also known as "Fannie Mae."
A legal process by which the lender or the seller forces a sale
of a mortgaged property because the borrower has not met the terms
of the mortgage. Also known as a repossession of property.
see Federal Home Loan Mortgage Corporation
see Government National Mortgage Association.
Also known as "Ginnie Mae," provides sources of funds
for residential mortgages, insured or guaranteed by FHA or VA.
A type of flexible-payment mortgage where the payments increase
for a specified period of time and then level off. This type of
mortgage has negative amortization built into it.
A fixed-rate mortgage that provides scheduled payment increases
over an established period of time. The increased amount of the
monthly payment is applied directly toward reducing the remaining
balance of the mortgage.
A promise by one party to pay a debt or perform an obligation contracted
by another if the original party fails to pay or perform according
to a contract.
A mortgage that is guaranteed by a third party.
A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the like.
The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her gross monthly income. See
debt-to-income ratio.
A document that provides an itemized listing of the funds that are
payable at closing. Items that appear on the statement include real
estate commissions, loan fees, points, and initial escrow amounts.
Each item on the statement is represented by a separate number within
a standardized numbering system. The totals at the bottom of the
HUD-1 statement define the seller's net proceeds
and the buyer's net payment at closing.
That portion of a borrower's monthly payments held by the lender
or servicer to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due. Also known as
reserves.
A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage
and that earned by other investments (such as one- three-, and five-year
U.S. Treasury security yields, the monthly average interest rate
on loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by
savings and loans), which is then used to adjust the interest rate
on an adjustable mortgage up or down.
The sum of the published index plus the margin. For example if the
index were 9% and the margin 2.75%, the indexed rate would be 11.75%.
Often, lenders charge less than the indexed rate the first
year of an adjustable-rate mortgage.
This refers to the original interest rate of the mortgage at the
time of closing. This rate changes for an adjustable-rate mortgage
(ARM). It's also known as "start rate" or "teaser."
The regular periodic payment that a borrower agrees to make to a
lender.
A mortgage that is protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI).
The fee charged for borrowing money.
The percentage rate at which interest accrues on the mortgage. In
most cases, it is also the rate used to calculate the monthly payments.
An arrangement that allows the property seller to deposit money
to an account. That money is then released each month to reduce
the mortgagor's monthly payments during the early years of a mortgage.
For an adjustable-rate mortgage (ARM), the maximum interest rate,
as specified in the mortgage note.
For an adjustable-rate mortgage (ARM), the minimum interest rate,
as specified in the mortgage note.
A construction loan made during completion of a building or a project.
A permanent loan usually replaces this loan after completion.
A money source for a lender.
A loan which is larger (more than $240,000 as of 1/1/99) than the
limits 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.
The penalty a borrower must pay when a payment is made a stated
number of days (usually 15) after the due date.
An alternative financing option that allows low- and moderate-income
home buyers to lease a home with an option to buy. Each month's
rent payment consists of principal, interest, taxes and insurance
(PITI) payments on the first mortgage plus an extra amount that
accumulates in a savings account for a downpayment.
A person's financial obligations. Liabilities include long-term
and short-term debt.
A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
For an adjustable-rate mortgage (ARM), a limit on the amount that
payments can increase or
decrease over the life of the mortgage.
For an adjustable-rate mortgage (ARM), a limit on the amount that
the interest rate can increase or decrease over the life of the
loan. See cap.
A sum of borrowed money (principal) that is generally repaid with
interest.
The relationship between the amount of the mortgage loan and the
appraised value of the property expressed as a percentage.
Lender's guarantee that the mortgage rate quoted will be good for
a specific number of days from day of application.
The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.
The highest price that a buyer would pay and the lowest price a
seller would accept on a property. Market value may be different
from the price a property could actually be sold for at a given
time.
The date on which the principal balance of a loan becomes due and
payable.
It is insurance from FHA to the lender against incurring a loss
on account of the borrower's default.
That portion of the total monthly payment that is applied toward
principal and interest. When a mortgage negatively amortizes, the
monthly fixed installment does not include any amount for principal
reduction and doesn't cover all of the interest. The loan balance
therefore increases
instead of decreasing.
A legal document that pledges a property to the lender as security
for payment of a debt.
A company that originates mortgages exclusively for resale in the
secondary mortgage market.
An individual or company that charges a service fee to bring borrowers
and lenders together for the purpose of loan origination.
The lender.
Money paid to insure the mortgage when the down payment is less
than 20 percent. See private mortgage insurance, FHA mortgage insurance.
A type of term life insurance In the event that the borrower dies
while the policy is in force, the debt is automatically paid by
insurance proceeds.
The borrower or homeowner.
Occurs when your monthly payments are not large enough to pay all
the interest due on the loan. This unpaid interest is added to the
unpaid balance of the loan. The danger of negative amortization
is that the home buyer ends up owing more than the original amount
of the loan.
The borrower's gross income minus federal income tax.
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender. Note: The
signed obligation to pay a debt, as a mortgage note.
A legal document that obligates a borrower to repay a mortgage loan
at a stated interest rate during a specified period of time.
The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
Mortgage whose annual rate changes yearly. The rate is usually based
on movements of a published index plus a specified margin, chosen
by the lender.
The fee charged by a lender to prepare loan documents, make credit
checks, inspect and sometimes appraise a property; usually computed
as a percentage of the face value of the loan.
A property purchase transaction in which the party selling the property
provides all or part of the financing.
The date when a new monthly payment amount takes effect on an adjustable-rate
mortgage (ARM) or a graduated-payment mortgage (GPM). Generally,
the payment change date occurs in the month immediately after the
adjustment date.
A limit on the amount that payments can increase or decrease during
any one adjustment period.
A limit on the amount that the interest rate can increase or decrease
during any one adjustment period, regardless of how high or low
the index might be.
A long term mortgage, usually ten years or more. Also called an
"end loan."
Principal, Interest, Taxes and Insurance. Also called monthly housing
expense.
Money is placed in a pledged savings account and this fund plus
earned interest is gradually used to reduce mortgage payments.
Prepaid interest assessed at closing by the lender. Each point is
equal to 1 percent of the loan amount (e.g., two points on a $100,000
mortgage would cost $2,000).
A legal document authorizing one person to act on behalf of another.
The process of determining how much money you will be eligible to
borrow before you apply for a loan.
Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance, private
mortgage insurance and special assessments.
A privilege in a mortgage permitting the borrower to make payments
in advance of their due date.
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily imposed) in many states.
Lenders, such as savings and loan associations, commercial banks,
and mortgage companies, who make mortgage loans directly to borrowers.
These lenders sometimes sell their mortgages to the secondary mortgage
markets such as to FNMA or GNMA, etc.
The amount borrowed or remaining unpaid. The part of the monthly
payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage not including
interest or any other charges.
The four components of a monthly mortgage payment. Principal refers
to the part of the monthly payment that reduces the remaining balance
of the mortgage. Interest is the fee charged for borrowing money.
Taxes and insurance refer to the monthly cost of property taxes
and homeowners insurance, whether these amounts that are paid into
an escrow account each month or not.
In the event that you do not have a 20 percent down payment, lenders
will allow a smaller down payment - as low as 3 percent in some
cases. With the smaller down payment loans, however, borrowers are
usually required to carry private mortgage insurance. Private mortgage
insurance will usually require an initial premium payment and may
require an additional monthly fee depending on your loan's structure.
Calculations used to determine if a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as
a percent of income ratio and total debt obligations as a percent
of income ratio.
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate and lender costs
for a specified period of time.
A real estate broker or an associate holding active membership in
a local real estate board affiliated with the National Association
of Realtors.
A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract
in some cases once it is signed if the transaction uses
equity in the home as security.
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property.
A loan in which the interest rate is adjusted periodically. See
adjustable rate mortgage.
Short for the Real Estate Settlement Procedures Act. RESPA is a
federal law that allows consumers to review information on known
or estimated settlement cost once after application and once prior
to or at a settlement. The law requires lenders to furnish the information
after application only.
A form of mortgage in which the lender makes periodic payments to
the borrower using the borrower's equity in the home as collateral
for and repayment of the loan.
A credit arrangement, such as a credit card, that allows a customer
to borrow against a preapproved line of credit when purchasing goods
and services.
The document issued by the mortgagee when the mortgage loan is paid
in full. Also called a "release of mortgage."
A mortgage made subsequent to another mortgage and subordinate to
the first one.
The place where primary mortgage lenders sell the mortgages they
make to obtain more funds to originate more new loans. It provides
liquidity for the lenders.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing,
often in combination with an assumable mortgage. See owner financing.
An organization that collects principal and interest payments from
borrowers and manages borrowers’ escrow accounts. The servicer
often services mortgages that have been purchased by an investor
in the secondary mortgage market.
All the steps and operations a lender performs to keep a loan in
good standing, such as collection of payments, payment of taxes,
insurance, property inspections and the like.
see closing/closing costs
A mortgage in which a borrower receives a below-market interest
rate in return for which the lender (or another investor such as
a family member or other partner) receives a portion of the future
appreciation in the value of the property. May also apply to mortgage
where the borrowers shares the monthly principal and interest payments
with another party in exchange for part of the appreciation.
Interest which is computed only on the principle balance.
The method used to determine the monthly payment required to repay
the remaining balance of a mortgage in substantially equal installments
over the remaining term of the mortgage at the current interest
rate.
A mortgage that allows for the interest rate to increase according
to a specified schedule (i.e., seven years), resulting in increased
payments as well. At the end of the specified period, the rate and
payments will remain constant for the remainder of the loan.
A measurement of land, prepared by a registered land surveyor, showing
the location of the land with reference to known points, its dimensions,
and the location and dimensions of any buildings.
Equity created by a purchaser performing work on a property being
purchased.
When a lender uses another party to completely or partially originate,
process, underwrite, close, fund, or package the mortgages it plans
to deliver to the secondary mortgage market.
A document that gives evidence of an individual's ownership of property.
A policy, usually issued by a title insurance company, which insures
a home buyer against errors in the title search. The cost of the
policy is usually a function of the value of the property, and is
often borne by the purchaser and/or seller. Policies are also available
to protect the lender's interests.
An examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company.
Total obligations as a percentage of gross monthly income including
monthly housing expenses plus other monthly debts.
A federal law requiring disclosure of the Annual Percentage Rate
to home buyers shortly after they apply for the loan. Also known
as Regulation Z.
A mortgage in which the borrower receives a below-market interest
rate for a specified number of years (most often seven or 10), and
then receives a new interest rate adjusted (within certain limits)
to market conditions at that time. the lender sometimes has the
option to call the loan due with 30 days notice at the end of seven
or 10 years. also called "Super Seven" or "Premier"
mortgage.
The decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors and the matching
of this risk to an appropriate rate and term or loan amount.
Interest charged in excess of the legal rate established by law.
A long-term, low- or no-down payment loan guaranteed by the Department
of Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
A premium of up to 1-7/8 percent (depending on the size of the down
payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage
with no down payment, this would amount to $1,406 either paid at
closing or added to the amount financed.
see adjustable rate mortgage
A document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
A document signed by the borrower's employer verifying his/her position
and salary.
Many mortgage firms must borrow funds on a short term basis in order
to originate loans which are to be sold later in the secondary mortgage
market (or to investors). When the prime rate of interest is higher
on short term loans than on mortgage loans, the mortgage firm has
an economic loss which is offset by charging a warehouse fee.
Results when an existing assumable loan is combined with a new loan,
resulting in an interest rate somewhere between the old rate and
the current market rate. The payments are made to a second lender
or the previous homeowner, who then forwards the payments to the
first lender after taking the additional amount off the top.
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