CLAUSE - allows the lender to speed up the rate at which your
loan comes due or even to demand immediate payment of the entire
outstanding balance of the loan should you default on your loan.
RATE MORTGAGE (ARM) - is a mortgage in which the interest
rate is adjusted periodically based on a preselected index. Also
sometimes known as the renegotiable rate mortgage, the variable
rate mortgage or the Canadian rollover mortgage.
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.
- means loan payment by equal periodic payments calculated to
pay off the debt at the end of a fixed period, including accrued
interest on the outstanding balance.
PERCENTAGE RATE (APR) - an interest rate reflecting the cost
of a mortgage as a yearly rate. This rate is likely to be higher
than the stated note rate or advertised rate on the mortgage,
because it takes into account points and other credit costs. This
APR allows homebuyers to compare different types of mortgages
based on the annual cost for each loan.
- 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 costs and new,
possibly higher, market-rate interest charges will apply.
(PAYMENT) MORTGAGE - usually a short-term fixed-rate loan
which involves small payments for a certain period of time and
one large payment for the remaining amount of the principal at
a time specified in the contract.
- 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 homebuilder subsidizes 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.
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 costs of closing usually are about 3 percent to
6 percent of the mortgage amount.
LOAN - a mortgage not insured by FHA or guaranteed by the
VA or Farmers Home Administration (FMHA).
REPORT - a report documenting the credit history and current
status of a borrower's credit standing.
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 net effective income (FHA/VA loans) or
gross monthly income (conventional loans). See housing expenses-to-income
OF VETERANS AFFAIRS (VA) - an independent agency of the federal
government which guarantees long-term, low-or no-downpayment mortgages
to eligible veterans.
- money paid to make up the difference between the purchase price
and the mortgage amount. Downpayments usually are 10 percent to
20 percent of the sales price on conventional loans, and no money
down up to 5 percent on FHA and VA loans.
- 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 - money given by a buyer to a seller as part of the
purchase price to bind a transaction or assure payment.
CREDIT OPPORTUNITY ACT (ECOA) - 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
- the difference between the fair market value and current indebtedness,
also referred to as the owner's interest.
- refers to a neutral third party who carries out the instructions
of both the buyer and seller to handle all the paperwork of settlement
or "closing." Escrow may also refer to an account held
by the lender into which the homebuyer pays money for tax or insurance
HOUSING ADMINISTRATION (FHA) - 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.
NATIONAL MORTGAGE ASSOCIATION (FNMA) - also known as "Fannie
Mae." 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.
LOAN - a loan insured by the Federal Housing Administration
open to all qualified home purchasers. While there are limits
to the size of FHA loans, they are generous enough to handle moderate-priced
homes almost anywhere in the country.
MORTGAGE INSURANCE - requires a small fee (up to 3.8 percent
of the loan amount) paid at closing or a portion of this fee added
to each monthly payment of an FHA loan to insure the loan with
FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this
fee would amount to either $2,850 at closing or an extra $31 a
month for the life of the loan. In addition, FHA mortgage insurance
requires an annual fee of 0.5 percent of the current loan amount,
paid in monthly installments. The lower the downpayment, the more
years the fee must be paid.
MORTGAGE - a mortgage on which the interest rate is set for
the term of the loan.
- a legal procedure in which property securing debt is sold by
the lender to pay the defaulting borrower's debt.
MAC - see Federal Home Loan Mortgage Corporation.
MAE - see Government National Mortgage Association.
NATIONAL MORTGAGE ASSOCIATION (GNMA) - also known as "Ginnie
Mae," provides sources of funds for residential mortgages,
insured or guaranteed by FHA or VA.
PAYMENT MORTGAGE (GPM) - 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 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.
INSURANCE - a form of insurance in which the insurance company
protects the insured from specified losses, such as fire, windstorm
and the like.
EXPENSES-TO-INCOME RATIO - the ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided by
his/her net effective income (FHA/VA loans) or gross monthly income
(conventional loans). See debt-to-income ratio.
- 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
- 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 cost-of-funds incurred by savings and
loans), which is then used to adjust the interest rate on an adjustable
mortgage up or down.
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.
- a claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
RATIO - the relationship between the amount of the mortgage
loan and the appraised value of the property expressed as a percentage.
- the amount a lender adds to the index on an adjustable rate
mortgage to establish the adjusted interest rate.
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.
INSURANCE - money paid to insure the mortgage when the downpayment
is less than 20 percent. See private mortgage insurance, FHA mortgage
- the lender.
- the borrower or homeowner.
AMORTIZATION - 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 homebuyer ends up owing more than the
original amount of the loan.
EFFECTIVE INCOME - the borrower's gross income minus federal
CLAUSE - a statement in a mortgage contract forbidding the
assumption of the mortgage with out the prior approval of the
FEE - the fee charged by the 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.
- principal, interest, taxes and insurance. Also called monthly
(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).
OF ATTORNEY - a legal document authorizing one person to act
on behalf of another.
- 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.
- a privilege in a mortgage permitting the borrower to make payments
in advance of their due date.
PENALTY - money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily imposed)
in 36 states and the District of Columbia.
MORTGAGE INSURANCE (PMI) - in the event that you do not have
a 20 percent downpayment, lenders will allow a smaller downpayment
- as low as 5 percent in some cases. With the smaller downpayment
loans, however, borrowers are usually required to carry private
mortgage insurance. Private mortgage insurance will require an
initial premium payment of 1.0 percent to 5.0 percent of your
mortgage amount and may require an additional monthly fee depending
on your loan's structure. On a $75,000 house with a 10 percent
downpayment, this would mean either an initial premium payment
of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined
with a monthly payment of $25 to $30.
- 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.
RATE MORTGAGE (RRM) - a loan in which the interest rate is
adjusted periodically. See adjustable rate mortgage.
ANNUlTY MORTGAGE (RAM) - a form of mortgage in which the lender
makes periodic payments to the borrower using the borrower's equity
in the home as security.
- 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.
APPRECIATION MORTGAGE (SAM) - 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 properly. May also apply to mortgages where the borrower shares
the monthly principal and interest payments with another party
in exchange for a part of the appreciation.
INSURANCE - a policy, usually issued by a title insurance
company, which insures a homebuyer against errors in the title
search. The cost of the policy is usually based on the value of
the property, and is often borne by the purchaser and/or seller.
SEARCH - an examination of municipal records to determine
the legal ownership of property which is usually performed by
a title company.
- a federal law requiring disclosure of the Annual Percentage
Rate to homebuyers shortly after they apply for the loan.
MORTGAGE - 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 homebuyer
based on credit, employment, assets, and other factors and the
matching of this risk to an appropriate rate and term or loan
LOAN - a long-term, low- or no downpayment loan guaranteed
by the Department of Veterans Affairs. Restricted to individuals
qualified by military service or other entitlements.
- 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