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Mortgage Glossary

Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.  Additional payments to principal will typically not lower your monthly payment unless your loan is an Adjustable Rate Mortgage.  If you have questions, please contact a Loan Officer.

Amortization Term
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.

Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Asset
Real property, personal property, and liquid funds (including bank accounts, stocks, mutual funds, etc.).

Liquid Asset
An asset that is easily converted into cash and is readily accessible.

Non Liquid Asset
An asset that cannot easily be converted into cash.  Generally non-liquid assets cannot be used to qualify for a mortgage.

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

Bridge Loan
A second loan 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.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.  A Certificate of Eligiblity is required to obtain a VA loan.

Closing
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."

Closing Costs
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.

Credit Report
A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Credit Risk Score (FICO)
A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Isaac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores have a significant impact on the rate and terms available for your loan.

Debt-to-Income Ratios
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 gross monthly income and total debt obligations as a percent of gross monthly income.

Deed of Trust / Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.  After closing, the executed Deed of Trust or Mortgage will be recorded at the local Register of Deeds office making it a part of the public record.

Earnest Deposit
This is a sum of money given to bind the sale of real estate between buyer and seller in a purchase transaction.

Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.  The amount of down payment will generally determine the amount of equity in the property once the sale is completed.

Equity
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

Escrow
An account held by the servicer of your loan used to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.  A portion of your monthly mortgage payment will be deposited into your escrow account.

First Mortgage
The primary lien against a property.

Fixed-Rate Mortgage (FRM)
A mortgage interest that are fixed throughout the entire term of the loan.

Gross Income
Income prior to taxes, withholdings, or any other deductions.  For the purpose of qualifying for a mortgage loan, monthly gross income is considered.

Interest
The fee charged for borrowing money.

Interest Rate Lock
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.

Interest Rate Lock Period
The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing.  Your Loan Officer will advise you on the most appropriate Lock-In Period for your situation.

Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.  The amount of the late charge will vary by product, but will generally be 5% or 4% of the overdue payment amount.

Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt.

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

Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

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

Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency depending on the loan program selected.

Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.

Mortgagor
The borrower in a mortgage agreement.

Note
A legal 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 processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.  Points are generally used to reduce the interest rate on your loan.

Pre-Qualification
The process of determining how much money you will be eligible to borrow before you apply for a loan.

Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal, Interest, Taxes, and Insurance (PITI)
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.

Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.  A separate Homeowners Insurance Policy is required to protect the homeowner.

Refinance
Paying off one loan with the proceeds from a new loan using the same property as security.

Security
The property that will be pledged as collateral for a loan.

Servicer
An organization that collects PITI payments from borrowers and manages borrowers' escrow accounts.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

 

Adjustable-Rate Mortgage (ARM) Terms
 

Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called VRMs (variable-rate mortgages).

Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Interest Rate Cap
Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning and may cause negative amortization.

Index
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.

Introductory Interest Rate
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."

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

Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.  The Interest Rate Floor can never be less than the Margin.

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

Lifetime Rate Cap
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.

Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Payment Change Date
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.

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

Periodic Rate Cap
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.

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