Mortgage Loan Terms
Rate Mortgage (ARM)
- A mortgage with an interest
rate that fluctuates according to the movements of a predefined index.
There are several types of ARM's, some change quicker than others, but all
have a ceiling cap.
Amortization - The gradual repayment of a
mortgage by installments.
Amortization Schedule - A timetable for
payment of a mortgage showing the amount of each payment applied to
interest and principal and the remaining balance of the loan.
Annual Percentage Rate (APR) - The total cost of
your mortgage loan expressed an annual interest rate. This includes the
base interest rate, mortgage insurance, origination fees, and some other
Appraisal - An opinion by a licensed real estate
appraiser regarding the fair market value of a property.
Appreciation - Difference between the increased
value of a property and the original cost of the property.
Assumable Loan - Usually for a small assumption
fee, a new buyer can take over or assume the loan of the previous
homeowner, saving closing cost and loan origination fees.
Cap - A provision of an ARM limiting how much the
interest rate or mortgage payments may increase or decrease.
Cash Reserve - A requirement of some lenders
that buyers have sufficient cash remaining after closing to make the first
two monthly mortgage payments.
Closing - The meeting at which a sale of a
property is finalized by the buyer signing the mortgage documents and
paying closing cost. Also know as "settlement".
Closing Costs - Expenses (over and above the
price of the property) incurred by buyers and sellers in transferring
ownership of a property. Also called "settlement costs".
Here is a whole page
about closing costs.
Combined Loan-to-Value (CLTV) - The LTV of the
first mortgage plus the LTV of the second mortgage.
Community Home Buyer's Program - An alternative
financing option that allows households of modest means to qualify for
mortgages using nontraditional credit histories.
Conventional Mortgage - Any mortgage that is
not insured or guaranteed by the federal government.
Credit Report - A report of an individual's
credit history prepared by a credit bureau and used by a lender in
determining a loan applicant's credit worthiness.
Debt-to-Income Ratio - Formula used to qualify
borrowers. The ratio expresses, as a percent, the amount of monthly debt
payments in relation to the amount of monthly income of a borrower(s).
Default - See Delinquency.
Deed - The legal document conveying title to a
Delinquency - The failure of a borrower to make a
mortgage payment when due.
Disclosure - Document which describes all
conditions of a mortgage loan including terms and interest rates.
Discount Points - A one time charge by the
lender to increase the yield of a loan. A point is one percent of the
amount of the mortgage.
Down Payment - The part of the purchase price
which the buyer pays in cash and does not finance with a mortgage.
Earnest Money - A deposit made by the
potential home buyer to show that he or she is serious about buying the
Escrow - The holding of documents and money by a
neutral third party prior to closing; also, an account held by the lender
(or servicer) into which a homeowner pays money for taxes and insurance.
Escrow Waiver - If the borrower's LTV is 80% or
less, the borrower may elect to waive having the lender hold money for
taxes and insurance in an escrow account. Addie Mae generally can offer
escrow waivers to borrowers with loans higher than 80% LTV.
FHA Mortgage - A mortgage that is insured by the
Federal Housing Administration("FHA"). Also referred to as a "government"
Fixed Rate Mortgage - A mortgage in which the
interest rate does not change during the entire term of the loan.
Hazard Insurance - Insurance coverage that
compensates for physical damage to a property from fire, wind, vandalism,
or other hazards.
Homeowner's Insurance - An insurance policy that
combines personal liability coverage and hazard insurance coverage for a
dwelling and its contents.
Index - The interest rate to which changes in an
adjustable-rate mortgage are pegged.
Interest Rate - The fee charged for borrowing
Jumbo Loan -Any conventional loan with a loan
amount in excess of the current FNMA/FHLMC loan amount limits. Currently
the loan limit is $214,600.
Lifetime Cap - A provision of an ARM that limits
the highest rate that can occur over the life of the loan.
Loan Application Fee - A lender's fee, usually
ranging from $75 to $300, which is sometimes required at application.
Loan-to-Value Ratio (LTV) - The relationship
between the unpaid principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property.
Lock-In - A written agreement guaranteeing the
home buyer a specified interest rate provided the loan is closed within a
set period of time. The lock-in also usually specifies the number of
points to be paid at closing.
Margin - The set percentage the lender adds to
the index rate to determine the current interest rate of an ARM.
Mortgage Insurance - (Also known as Private
Mortgage Insurance (PMI)). Insurance provided by non-government
insurers that protects lenders against loss if a borrower defaults.
Federal National Mortgage Assoc. ("Fannie Mae") generally
requires PMI private mortgage insurance for loans with loan-to-value
(LTV) ratios greater than 80 percent. Addie Mae generally
does not require private mortgage insurance for any loans we
Mortgage Insurance Premium (MIP) - The fee paid
by a borrower to FHA for mortgage insurance.
Mortgagee - The lender in a mortgage agreement.
Mortgagor - The borrower in a mortgage
Payment Cap - A provision of some ARM's
limiting the amount by which a borrower's payments may increase regardless
of any interest rate increase, may result in negative amortization.
NIV Loan - A loan program which requires no
verification of income, but requires verification of assets.
Origination Points - The fee(s) sometimes
charged by a vendor to originate a loan. The fee(s) are usually computed
as a percentage of the face value of the mortgage.
PITI - Acronym for principal, interest, taxes
and insurance - the components of a monthly mortgage payment.
Pre-approval - The process of determining that
a borrower is credit approved up to a predetermined amount. The borrower
is credit approved pending the locating of a home that meets the
predetermined loan criteria.
Principal - The amount borrowed or remaining
unpaid, also, that part of the monthly payment that reduces the
outstanding balance of a mortgage.
Private Mortgage Insurance - Insurance provided
by non-government insurers that protects lenders against loss if a
borrower defaults. Fannie Mae generally requires private mortgage
insurance for loans with loan-to-value (LTV) ratios greater than 80
Rate Lock - A written agreement guaranteeing the
home buyer a specified interest rate provided the loan is closed within a
set period of time. Also know as a Lock-In, usually specifies the number
of points to be paid at closing. .
Temporary Interest Rate Buydown - An
arrangement wherein the property seller (or any other third party)
deposits money into an account so that it can be released each month to
reduce the mortgagor's monthly payments during the early years of the
mortgage. During the specified period, the mortgagor's effective interest
rate is "brought down" below the actual mortgage interest rate.
Title Company - A company that specializes in
examining and insuring titles to real estate.
Title Insurance - A type of insurance that insures
against defects in title that were not listed in the title report or
Title Search - A check of the title record to
ensure that the seller is the legal owner of the property and that there
are no liens or other claims outstanding.
Truth-in-Lending (TIL) - A federal law that
requires lenders to fully disclose, in writing, the terms and conditions
of a mortgage including the "annual percentage rate (APR)" and other
Underwriting - The process of evaluating a loan
application to determine the risk involved for the lender. It involves an
analysis of the borrower's credit worthiness and the quality of the
VA Loan - A loan that is guaranteed by the
Department of Veterans Affairs. Also referred to as a "government"