Mortgage Terminology

Adjustable Rate Mortgage This is a mortgage where the interest rate is adjusted periodically based on a pre-selected index.

Amortization The loan payment broken down by 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)   APR is a measurement of the full cost of a mortgage including interest and mortgage 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 mortgages.

Appraisal An estimate of the property value.  This is done by a licensed professional called an “appraiser”.

Balloon Mortgage This is a mortgage that is amortized for a longer period of time than the term.  At the end of the term (I. e.  5 years), the remaining outstanding balance on the mortgage is due.  This final payment is known as a balloon payment.

Blanket Mortgage A mortgage covering at least two pieces of real estate for the same mortgage.

Borrower Person who applies for and receives a mortgage with the intention of repaying the mortgage in full.

Broker A professional in the business of assisting in the funding or negotiating of mortgages for a client but who does not loan the money themselves.  Brokers usually charge a fee or receive commission for their services.

Buy-down When the lender subsidizes the mortgage by lowering the interest rate during the first few years of the loan.  While payments are initially low, they will increase when the subsidy expires.

Cash Flow The amount of cash derived over a certain period of time from an income-producing property, such as a rental.  The cash flow should be large enough to pay the expenses of the property (mortgage payment, insurance, utilities, etc.).

Closing The meeting or settlement between the buyer, seller and lender or their real estate agents where the property and funds change hands.  Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, plat drawing, taxes, mortgage document recording fees required by the county and other costs assessed at the closing.  The cost of closing a mortgage average between three to six percent of the mortgage amount.

Construction Loans A short term interim mortgage to pay for the construction of a home.  These mortgages are usually designed to provide periodic disbursements to the builder as he progresses.

Contract For Deed A contract between a buyer and seller of real estate property to convey title only after certain conditions have been met.

Conventional Mortgage A mortgage not insured by FHA or guaranteed by the VA.

Credit Bureau Report A report documenting the credit history and current status of a borrower’s standing with creditors.

Debt-To-Income Ratio This ratio, expressed as a percentage, results when a borrower’s monthly payments on long-term debts are divided by their gross monthly income.

Default Failure to meet legal obligations or monthly payments in a contract or mortgage.

Delinquency Failure to make mortgage payments on time or as scheduled.  This can lead to foreclosure of the mortgaged property.

Down Payment Money paid to make up the difference between the purchase price and the mortgage amount of the loan.

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Equity The difference between the fair market value and current indebtedness, also referred to as the owner’s interest.  The value the 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.  Earnest deposits are also held pending mortgage loan closing.

Fixed Rate Mortgage The mortgage interest rate will remain the same on these types of mortgages throughout the term of the mortgage.

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 note.

Guaranty A promise by one party to pay a debt if the original party fails to pay according to the contract or note.

Hazard Insurance Insurance in which the insurance company protects the insured from specified losses, such as windstorm or fire.

Impounds Portion of a borrower’s monthly payment held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, etc.  that becomes due.

Interest Caps Consumer safeguards which limit the amount of interest rate on an adjustable rate mortgage which may change per year over the life of the loan.

Jumbo Loan A larger mortgage loan (more than $240,000. 00 as of January 1, 1999) than the limits set by FNMA and the FHLMC.  Because jumbo loans cannot be funded by these two agencies, they usually are set at a slightly higher rate of interest.

Lien A legal claim on real estate for a debt or obligation.  This can by paid in monthly payments until satisfied.

Loan-To-Value The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock Lender’s guarantee that the mortgage rate quoted will be good for a specific number of days.

Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property.

Mortgage Insurance Money paid to insure the mortgage loan when the down payment is less than 20% or the mortgage amount is over 80% of the appraised value.

Mortgagee The lender

Origination Fee Fee charged by a lender or mortgage broker to prepare the loan package & documents and review credit.  This fee is a percentage of the mortgage loan amount.

Points This is prepaid interest at closing by the lender.  Each point represents one percent of the mortgage loan amount.  This is also referred to as Loan Discount points.

Prepayment Penalty Amount charged for an early prepayment of the mortgage loan.

Principal The current amount of the mortgage loan, not considering interest.

Recission The cancellation period of a mortgage loan when refinancing.  This law gives the homeowner three days to cancel the loan if the transaction uses equity in the home as security.

Recording Fees Amounts paid to the lender for recording a mortgage with the county authorities, making it part of the public record.

Refinance Obtaining a new mortgage loan on real estate that a borrower already owns.

RESPA (Real Estate Settlement Procedures Act) A federal law that allows consumers to review information of estimated settlement costs at the application period and before the mortgage loan closing.

Satisfaction of Mortgage Document prepared by the mortgagee when a mortgage loan balance is paid in full.

Second Mortgage A mortgage made subsequent to another mortgage and subordinate to the first mortgage.

Simple Interest Interest which is computed only on the principle balance.

Title Document the shows evidence of ownership of property.

Title Insurance Policy issued by a title company that insures a home buyer and/or mortgagee against errors in the title search.

Truth-In-Lending Statement A disclosure required by federal law that shows the Annual Percentage Rate to buyers after they apply for the mortgage loan.

This entry was posted on Wednesday, February 4th, 2009 at 5:46 pm.