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.
back
to top
Acceleration
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.
back
to top
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.
back
to top
Adjusted Basis
The cost of a property plus the value of any capital
expenditures for improvements to the property minus
any depreciation taken.
back
to top
Adjustment Date
The date that the interest rate changes on an adjustable
rate mortgage (ARM).
back
to top
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.
back
to top
Adjustment Period
The period elapsing between adjustment dates for an
adjustable rate mortgage (ARM).
back
to top
Affordability Analysis
An analysis of a buyer’s 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.
back
to top
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.
back
to top
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.
back
to top
Annual Percentage Rate (APR)
The 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 different loans.
back
to top
Appraisal
An estimate of the value of property made by a qualified
professional called an "appraiser.”
back
to top
Appraised Value
An opinion of a property's fair market value, based
on an appraiser's knowledge, experience, and analysis
of the property.
back
to top
Assessment
A local tax levied against a property for a specific
purpose, such as a sewer or street lights.
back
to top
Assignment
The transfer of a mortgage from one person to another.
back
to top
Assumability
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.
back
to top
Assumption
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.
back
to top
Assumption Fee
The fee paid to a lender (usually by the purchaser
of real property) when an assumption takes place.
back
to top
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.
back
to top
Balloon Payment
The final lump sum paid at the maturity date of a
balloon mortgage.
back
to top
Biweekly Payment 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.
back
to top
Blanket Mortgage
A mortgage covering at least two pieces of real estate
as security for the same mortgage.
back
to top
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.
back
to top
Bridge Loan
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."
back
to top
Broker
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.
back
to top
Buy Down
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.
back
to top
Cash Flow
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...).
back
to top
Caps (interest)
Consumer safeguards which limit the amount of change
to the interest rate for an adjustable rate mortgage.
back
to top
Caps (payment)
Consumer safeguards which limit the amount of change
to the monthly payments for an adjustable rate mortgage.
back
to top
Certificate of Eligibility
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 DADA (Separation Paper) to the local
VA office with VA form 1880 (Request for Certificate
of Eligibility).
back
to top
Certificate of Reasonable
Value (CRV)
An appraisal issued by the Veterans Administration
showing the property's current market value.
back
to top
Certificate of Veteran Status
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.
back
to top
Change Frequency
The frequency (in months) of payment and/or interest
rate changes in an adjustable rate mortgage (ARM).
back
to top
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
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.
back
to top
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 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.
back
to top
COFI
An adjustable-rate mortgage with a rate that adjusts
based on a cost-of-funds index, often the 11th District
Cost of Funds.
back
to top
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.
back
to top
Consumer Reporting Agency
(or Bureau)
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 other sources.
back
to top
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.
back
to top
Conventional Loan
A mortgage not insured by FHA or guaranteed by VA.
back
to top
Conversion Clause
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.
back
to top
Credit Report
A report documenting the credit history and current
status of a borrower's credit standing.
back
to top
Credit Risk Score
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.
back
to top
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.
back
to top
Deed of Trust
In many states, this document is used in place of
a mortgage to secure the payment of a note.
back
to top
Default
Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
back
to top
Deferred Interest
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.
back
to top
Delinquency
Failure to make payments on time. This can lead to
foreclosure.
back
to top
Department of Veterans Affairs
(VA)
An independent agency of the federal government which
guarantees long term, low-or-no-down payment mortgages
to eligible veterans.
back
to top
Discount Point
See point
back
to top
Down Payment
Money paid to make up the difference between the purchase
price and the mortgage amount.
back
to top
Due-on-Sale-Clause
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.
back
to top
Earnest Money
Money given by a buyer to a seller as part of the
purchase price to bind a transaction or assure payment.
back
to top
Entitlement
The VA home loan benefit is called an entitlement
(i.e. entitlement for a VA guaranteed home loan).
This is also known as eligibility.
back
to top
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.
back
to top
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.
back
to top
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.
back
to top
Escrow Disbursements
The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other property
expenses as they become due.
back
to top
Escrow Payment
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.
back
to top
Fannie Mae
See Federal National Mortgage Association.
back
to top
Farmers Home Administration
(FmHA)
Provides financing to farmers and other qualified
borrowers who are unable to obtain loans elsewhere.
back
to top
Federal Home Loan Bank Board
(FHLBB)
The former name for the regulatory and supervisory
agency for federally chartered savings institutions.
The agency is now called the Office of Thrift Supervision
back
to top
Federal Home Loan Mortgage
Corporation(FHLMC) also called "Freddie Mac"
A government sponsored entity that purchases conventional
mortgage from insured depository institutions and
HUD-approved mortgage bankers.
back
to top
Federal 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.
back
to top
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.
back
to top
FHA 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 moderately priced homes almost anywhere
in the country.
back
to top
FHA Mortgage Insurance
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.
back
to top
FHLMC
The Federal Home Loan Mortgage Corporation provides
a secondary market for savings and loans by purchasing
their conventional loans. Also known as "Freddie
Mac."
back
to top
Firm Commitment
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.
back
to top
First Mortgage
The primary lien against a property.">
back
to top
Fixed Installment
The monthly payment due on a mortgage loan including
payment of both principal and interest.
back
to top
Fixed Rate Mortgage
The mortgage interest rate will remain the same on
these mortgages throughout the term of the mortgage
for the original borrower.
back
to top
Fully Amortized ARM
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.
back
to top
FNMA
The Federal National Mortgage Association is a secondary
mortgage institution. FNMA buys VA, FHA, and conventional
mortgages from primary lenders. Also known as "Fannie
Mae."
back
to top
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.
back
to top
Freddie Mac
See Federal Home Loan Mortgage Corporation
back
to top
Ginnie Mae
See Government National Mortgage Association.
back
to top
Government National Mortgage
Association (GNMA)
Also known as "Ginnie Mae." Provides sources
of funds for residential mortgages, insured or guaranteed
by FHA or VA.
back
to top
Graduated 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.
back
to top
Growing Equity Mortgage (GEM)
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.
back
to top
Guaranty
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.
back
to top
Guarantee Mortgage
A mortgage that is guaranteed by a third party.
back
to top
Hazard Insurance
A form of insurance in which the insurance company
protects the insured from specified losses, such as
fire, windstorm and the like.
back
to top
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.
back
to top
HUD-1 Statement
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.
back
to top
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.
back
to top
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.
back
to top
Indexed Rate
The sum of the published index plus the margin. For
example if the index is 4% and the margin is 2.75%,
the indexed rate would be 6.75%. Often, lenders charge
less than the indexed rate the first year of an adjustable
rate mortgage.
back
to top
Initial 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."
back
to top
Installment
The regular periodic payment that a borrower agrees
to make to a lender.
back
to top
Insured Mortgage
A mortgage that is protected by the Federal Housing
Administration (FHA) or by private mortgage insurance
(MI).
back
to top
Interest
The fee charged for borrowing money.
back
to top
Interest Accrual Rate
The percentage rate at which interest accrues on the
mortgage. In most cases, it is also the rate used
to calculate the monthly payments.
back
to top
Interest Rate Buydown Plan
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.
back
to top
Interest Rate Ceiling
For an adjustable rate mortgage (ARM), the maximum
interest rate, as specified in the mortgage note.
back
to top
Interest Rate Floor
For an adjustable rate mortgage (ARM), the minimum
interest rate, as specified in the mortgage note.
back
to top
Interim Financing
A construction loan made during completion of a building
or a project. A permanent loan usually replaces this
loan after completion.
back
to top
Investor
A money source for a lender.
back
to top
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.
back
to top
Late Charge
The penalty a borrower must pay when a payment is
made a stated number of days after the due date.
back
to top
Lease-Purchase Mortgage
Loan
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 down payment.
back
to top
Liabilities
A person's financial obligations. Liabilities include
long term and short term debt.
back
to top
Lien
A claim upon a piece of property for the payment or
satisfaction of a debt or obligation.
back
to top
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.
back
to top
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.
back
to top
Loan
A sum of borrowed money (principal) that is generally
repaid with interest.
back
to top
Loan to Value Ratio
The relationship between the amount of the mortgage
loan and the appraised value of the property expressed
as a percentage.
back
to top
Lock
A lender's guarantee that the mortgage rate quoted
will be good for a specific number of days from the
day of application.
back
to top
Margin
The amount a lender adds to the index on an adjustable
rate mortgage to establish the adjusted interest rate.
back
to top
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.
back
to top
Maturity
The date on which the principal balance of a loan
becomes due and payable.
back
to top
MIP (Mortgage Insurance
Premium)
Insurance from FHA to the lender against incurring
a loss on account of the borrower's default.
back
to top
Monthly Fixed Installment
The 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.
back
to top
Mortgage
A legal document that pledges a property to the lender
as security for payment of a debt.
back
to top
Mortgage Banker
A company that originates mortgages for resale in
the secondary mortgage market.
back
to top
Mortgage Broker
An individual or company that charges a service fee
to bring borrowers and lenders together for the purpose
of loan origination.
back
to top
Mortgagee
The lender.
back
to top
Mortgage Insurance
Money paid to insure the mortgage when the down payment
is less than 20 percent. See private mortgage insurance,
FHA mortgage insurance.
back
to top
Mortgage Life Insurance
A type of term life insurance. In the event that the
borrower dies while the policy is in force, the mortgage
debt is automatically paid by insurance proceeds.
back
to top
Mortgagor
The borrower or homeowner.
back
to top
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.
back
to top
Net Effective Income
The borrower's gross income minus federal income tax.
back
to top
Non Assumption Clause
A statement in a mortgage contract forbidding the
assumption of the mortgage without the prior approval
of the lender.
back
to top
Note
A legal document that obligates a borrower to repay
a mortgage loan at a stated interest rate during a
specified period of time.
back
to top
Office of Thrift Supervision
(OTS)
The regulatory and supervisory agency for federally
chartered savings institutions. Formally known as
Federal Home Loan Bank Board
back
to top
One Year Adjustable Rate
Mortgage
Mortgage where the annual rate changes yearly. The
rate is usually based on movements of a published
index plus a specified margin, chosen by the lender.
back
to top
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.
back
to top
Owner Financing
A property purchase transaction in which the party
selling the property provides all or part of the financing.
back
to top
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.
back
to top
Periodic Payment Cap
A limit on the amount that payments can increase or
decrease during any one adjustment period.
back
to top
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.
back
to top
Permanent Loan
A long term mortgage, usually ten years or more. Also
called an "end loan."
back
to top
PITI
Principal, interest, taxes and insurance. Also called
monthly housing expense.
back
to top
Pledged Account Mortgage
(PAM):
Money is placed in a pledged savings account and this
fund plus earned interest is gradually used to reduce
mortgage payments.
back
to top
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).
back
to top
Power of Attorney
A legal document authorizing one person to act on
behalf of another.
back
to top
Preapproval
The process of determining how much money you will
be eligible to borrow before you apply for a loan.
back
to top
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.
back
to top
Prepayment
A privilege in a mortgage permitting the borrower
to make payments in advance of their due date.
back
to top
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily
imposed) in many states.
back
to top
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…
back
to top
Principal
The amount borrowed or remaining unpaid. The part
of the monthly payment that reduces the remaining
balance of a mortgage.
back
to top
Principal Balance
The outstanding balance of principal on a mortgage
not including interest or any other charges.
back
to top
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
are paid into an escrow account each month or not.
back
to top
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 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.
back
to top
Qualifying 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 income ratio and
total debt obligations as a percent of income ratio.
back
to top
Rate Lock
A commitment issued by a lender to a borrower or another
mortgage originator guaranteeing a specified interest
rate and lender costs for a specified period of time.
back
to top
Realtor®
A real estate broker or an associate holding active
membership in a local real estate board affiliated
with the National Association of Realtors.
back
to top
Real Estate Agent
A person licensed to negotiate and transact the sale
of real estate on behalf of the property owner.
back
to top
Real Estate Settlement Procedures
Act (RESPA)
A consumer protection law that requires lenders to
give borrowers advance notice of closing costs.
back
to top
Recission
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.
back
to top
Recording Fees
Money paid to the lender for recording a home sale
with the local authorities, thereby making it part
of the public records.
back
to top
Refinance
Obtaining a new mortgage loan on a property already
owned often to replace existing loans on the property.
back
to top
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically.
See adjustable rate mortgage.
back
to top
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.
back
to top
Reverse Annuity 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 collateral for and repayment of the
loan.
back
to top
Revolving Liability
A credit arrangement, such as a credit card, that
allows a customer to borrow against a pre-approved
line of credit when purchasing goods and services.
back
to top
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage
loan is paid in full. Also called a "release
of mortgage."
back
to top
Second Mortgage
A mortgage made subsequent to another mortgage and
subordinate to the first one.
back
to top
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.
back
to top
Security
The property that will be pledged as collateral for
a loan.
back
to top
Seller Carry Back
An agreement in which the owner of a property provides
financing, often in combination with an assumable
mortgage. See owner financing.
back
to top
Servicer
An organization that collects principal and interest
payments from borrowers and manages borrower escrow
accounts. The servicer often services mortgages that
have been purchased by an investor in the secondary
mortgage market.
back
to top
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.
back
to top
Settlement/Settlement Costs
See closing/closing costs
back
to top
Shared 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 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.
back
to top
Simple Interest
Interest which is computed only on the principle balance.
back
to top
Standard Payment Calculation
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.
back
to top
Step Rate Mortgage
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.
back
to top
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.
back
to top
Sweat Equity
Equity created by a purchaser performing work on a
property being purchased.
back
to top
Third Party Origination
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.
back
to top
Title
A document that gives evidence of an individual's
ownership of property.
back
to top
Title Insurance
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.
back
to top
Title Search
An examination of municipal records to determine the
legal ownership of property. Usually is performed
by a title company.
back
to top
Total Expense Ratio
Total obligations as a percentage of gross monthly
income including monthly housing expenses plus other
monthly debts.
back
to top
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.
back
to top
Two Step 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.
back
to top
Underwriting
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.
back
to top
Usury
Interest charged in excess of the legal rate established
by law.
back
to top
VA Loan
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.
back
to top
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the
size of the down payment) paid on a fixed rate 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.
back
to top
Variable Rate Mortgage (VRM)
See adjustable rate mortgage
back
to top
Verification of Deposit
(VOD)
A document signed by the borrower's financial institution
verifying the status and balance of his/her financial
accounts.
back
to top
Verification of Employment
(VOE)
A document signed by the borrower's employer verifying
his/her position and salary.
back
to top
Warehouse Fee
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.
back
to top
Wraparound Mortgage
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
back to top.
back
to top
