3/1, 5/1, 7/1 and 10/1 ARMs
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.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage, variable rate mortgage or Canadian rollover mortgage.
Adjustment Date
The date that the interest rate changes on an adjustable rate mortgage (ARM).
Adjustment Interval
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.
Amortization
Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Annual Percentage Rate (APR)
centage Rate (The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders are supposd to apply to the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of different loans.
Appraisal
An estimate of the value of property made by a qualified professional called an "appraiser."
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Assessed Value
The value assigned by the town for the purpose of collecting tax revenues to support Municipal Services.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Balloon Mortgage
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 or seven 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.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Caps (interest)
Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.
Caps (payment)
Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. Closing costs may 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 may be as much as 3 percent to 6 percent of the mortgage amount.
Closing Costs
Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs may include an origination fee, attorney's fees, 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.
Construction Loan
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.
Contract Sale or Deed
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.
Conventional Loan
A mortgage not insured by FHA or guaranteed by VA.
Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
Debt-to-Income Ratio
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.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Equal Credit Opportunity Act (ECOA)
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.
Equity
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.
Escrow
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.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A government sponsored entity that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Foreclosure
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.
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Housing Expenses-to-Income Ratio
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 .
Impound
The 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.
Index
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.
Jumbo Loan
A loan which is larger 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.
Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan to Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value
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.
Mortgage Insurance
Money paid to insure the lender against default on a mortgage when the down payment is less than 20 percent. See private mortgage insurance.
Mortgagee
The lender
Mortgagor
The borrower or homeowner.
Negative Amortization
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 home buyer ends up owing more than the original amount of the loan.
Origination Fee
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.
Permanent Loan
A long term mortgage, usually ten years or more. Also called an "end loan."
PITI
Principal, interest, taxes and insurance. Also called monthly housing expense.
Points (Loan Discount Points)
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).
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepaid Expenses
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.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Primary Mortgage Market
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 FNMA or GNMA, etc.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 0 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance may require an initial premium payment and may require an additional monthly fee depending on your loan's structure.
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Rescission
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.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish the information after application only.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Secondary Mortgage Market
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.
Servicing
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.
Simple Interest
Interest which is computed only on the principle balance.
Survey
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.
Sweat Equity
Equity created by a purchaser performing work on a property being purchased.
Title
A document that gives evidence of an individual's ownership of property.
Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search (optional).. 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 (typically required).
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company or attorney.
Truth in Lending
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.
Underwriting
The decision whether to make a loan to a potential home buyer/owner based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
