ACCELERATION 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.

ADJUSTABLE 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.

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.

AMORTIZATION - 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.

ANNUAL 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 oradvertised 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.

APPRAISAL - an estimate of the value of property, made by a qualified professional called an "appraiser."

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 costs and new, possibly higher, market-rate interest charges will apply.

BALLOON (PAYMENT) MORTGAGE - a loan which is amortized for a longer period than the term of the loan. 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.

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.

BUY-DOWN - 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.

CAPS (INTEREST RATE/Life of Loan) - consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

CAPS (PAYMENT) - consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

CASH OUT- a loan amount larger than the amount needed to pay-off the existing mortgage balance(s) when doing a refinance or a new equity loan. This is a way to leverage your real estate assets (and create some liquitity).

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 costs of closing usually are about 3 percent to 6 percent of the mortgage amount.

COFI - Adjustable rate mortgage with a rate that adjusts based on a cost of funds index, often the 11th District Cost of Funds.

CONFORMING LOAN - a conventional loan. Conforming Loan amount maximum is $417,000 for a single family residence.

CONVENTIONAL LOAN - a mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FMHA).

CONVERSION OPTION - the conversion option is usually associated with a mortgage that has a scheduled balloon payment. After a specificed amount of time (but before the balloon payment is due), the borrower has the option to convert the remaining principal balance to a fully amortized adjustable rate mortgage for the remaining term (example: for a 7 year balloon mortgage, the remaining term would be 23 years). See 5 and 7 year Balloon Program.

CREDIT REPORT - a report documenting the credit history and current status of a borrower's credit standing.

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 net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

DEED OF TRUST - in many states, this document is used in place of a mortgage to secure the payment of a note.

DEFAULT - failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

DEFERRED INTEREST - when a mortgage is written with a monthly payment that is less then required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. see negative amortization.

DELINQUENCY - failure to make payments on time. This can lead to foreclosure.

DOWNPAYMENT - money paid to make up the difference between the purchase price and the mortgage amount. Downpayments usually are 5 percent to 20 percent (or more) of the sales price on conventional loans.

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.

EARNEST MONEY - money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

EQUAL 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 programs.

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.

ESCROW - 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 payments.

FAIR MARKET VALUE - refers to the value given to the subject property by an appraisor. This value is determined by comparing the subject property to other properties (similar in size, style, age, local, etc) that have been recently sold. See - appraisal.

FANNIE MAE - see Federal National Mortgage Association.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - also called "Freddie Mac," is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

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.

FEDERAL 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.

FIXED-RATE MORTGAGE - a mortgage on which the interest rate is set and remains the same for the term of the loan.

FORECLOSURE - a legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt.

FREDDIE MAC - see Federal Home Loan Mortgage Corporation.

GROSS MONTHLY INCOME - the total amount the borrower earns per month, before any expenses are deducted.

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.

HAZARD INSURANCE - a form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

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.

IMPOUND - 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 as reserves.

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 cost-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

INSTALLMENT PAYMENT - this is a payment with a recurring fixed amount due every month for a designated time duration. Examples are: car payments, personal loans, student loans, alimony and child support.

INVESTOR - a money source for a lender.

INVESTMENT PROPERTY - a property that is usually considered a 'rental property' for the owner (income producing property).

JUMBO LOAN - a loan which is larger than the limits ($417,001 for a one unit single family residence) 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.

LIEN - a claim upon a piece of property for the payment or satisfaction of a debt or obligation.

LOAN-TO-VALUE RATIO - the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

LOCK - the lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.

MARGIN - the amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

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.

MORTGAGE INSURANCE - money paid to insure the mortgage when the downpayment is less than 20 percent. See private mortgage insurance.

MORTGAGEE - the lender.

MORTGAGOR - the borrower or homeowner.

NEGATIVE 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.

NET EFFECTIVE INCOME - the borrower's gross income minus federal income tax.

NONASSUMPIION CLAUSE - a statement in a mortgage contract forbidding the assumption of the mortgage with out the prior approval of the lender.

ORIGINATION 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.

PITI - principal, interest, taxes and insurance. Also called monthly housing expense.

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).

POWER OF ATTORNEY - a legal document authorizing one person to act on behalf of another.

PREPAIDS - 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.

PREPAYMENT - a privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PREPAYMENT 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.

PRIMARY RESIDENCE - a home that is "owner occupied".

PRINCIPAL BALANCE - the amount of debt, not counting interest, left on a loan.

PRIVATE 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 and may require an additional monthly fee depending on the loan's structure.

RATE & TERM REFINANCE- a loan amount equal to the amount needed to pay-off the existing mortgage balance(s) when doing a refinance or a new equity loan . This is a way to usually improve the old loan terms - lower the interest rate and/or reduce the time duration of the existing mortgage obligation. The new loan amount may also include any amount needed for loan fees and other closing costs.

REALTOR - a real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

RECISION - 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.

RECORDING FEES - money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFINANCE- a new loan to pay-off the existing mortgage balance(s) usually done to improve the old loan terms - lower the interest rate and/or reduce the time duration of the existing mortgage obligation. The new loan amount may also include cash out.

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.

SECOND MORTGAGE - a mortgage made subsequent to another mortgage and subordinate to the first one.

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.

SETTLEMENT/SETTLEMENT COSTS - see closing/closing costs.

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.

TERM MORTGAGE - see balloon payment mortgage.

TITLE- a document that gives evidence of an individual's ownership of property.

TITLE 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. Policies are also available to protect the lender's interest.

TITLE SEARCH - an examination of municipal records to determine the legal ownership of property which is usually performed by a title company.

TRUTH-IN-LENDING - a federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

UNDERWRlTING - 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 amount.

VA 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.

VARIABLE RATE MORTGAGE (VRM) - see adjustable rate mortgage.

VERIFICATION OF DEPOSIT (VOD) - a document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT (VOE) - a document signed by the borrower's employer verifying his/her position and salary.

WRAPAROUND - 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 top.

Web design by MckyFoto for Courtesy Financial - Copyright 2001/2006 - All Rights Reserved