Fixed Rate Mortgage
A mortgage where the interest rate remains the same through the life of the loan.

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.

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.

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."

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.

Interest Only
A mortgage option which allows the borrower to pay only the interest portion of their payment for some period of time.

Debt-to-Income Ratio
The ratio of a burrower's monthly payment obligation on long-term debts divided by their gross monthly income.

Mortgage
A written document which shows evidence of a lien on a property by a lender as security that the loan will be repaid.

PITI
An abbreviation for total payment meaning principal, interest, taxes, and insurance.

Recission

The cancellation or annulment of a mortgage transaction by the borrower.

Borrowers on a refinance loan receive a Right to Recission lasting 3 business days.

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.

CPA Letter

A letter drafted by a C.P.A., or Certified Public Accountant, which can be used as employment and income verification, typically for self-employed borrowers. Usually these letters state that the C.P.A. has been doing taxes for a borrower, and that they have been employed for 'X' amount of years for 'Y' company, etc...

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Promissory Note
A document in which the borrower promises to pay a stated amount on a specific date. The note normally states the name of the lender, the terms of payment and any interest rate.

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

Amortization
This is the repayment of a loan through a schedule of periodic and timely payments.

Appraisal
A professional estimate of value. This is based on most recent sold comparable properties. It is necessary for the Mortgage Lender to determine the amount of money it will loan. This is performed by a qualified professional Appraiser.

Annual percentage rate (A. P. R.)
Is the interest rate reflecting the cost of a mortgage as a yearly rate? This measurement of rates is likely to be a little higher than the stated mortgage note rate or advertised rate on the mortgage. It takes into account points and other mortgage related origination costs. You can find the A.P.R. on the mortgage disclosure document.

Closing Costs
Cost associated with applying and closing for a mortgage, these are the fees on the Good Faith Estimate (GFE )

Borrowers Authorization
A written authorization from the borrower in favor of the lender to gather the necessary information about them.

B/C Loan
A loan with many different possible disqualifying characteristics. These may include larger loan amounts, property type (such as number of units or zoning), or credit problems, etc..

Caps (interest)
Consumer safeguards put in place to limit the amount the interest rate on an adjustable rate mortgage may change per adjustment period. It is in effect for the life on the mortgage.

Fully Indexed Rate (FIR)

Especially important in ARM's, once the loan has reached the end of the fixed rate period it switches to an adjustable loan. Your interest rate will be calculated either annually or semi-annually by adding the index your loan is tied to (MTA, LIBOR, etc.) and your margin. The margin is specific to each specific loan. For example:

A 6.00% short-term fixed ARM is ending it's fixed period. The loan is tied to the LIBOR index and has a margin of 5.50. If the LIBOR index is at 3.22, your Fully Indexed Rate will be 8.72% at the end of the fixed period.

Due On Sale Clause

a clause in a mortgage contract providing that if the borrower sells or transfers any interest in the property, the lender has the right to accelerate payment and demand the entire unpaid principal balance.

Closing
The meeting between all parties to the loan or their agents, where the property and mortgage funds change hands.

Census Tract

A geographic region whose boundaries are defined by the census bureau based on the number of people who live within the area. Used when determining neighborhood characteristics on appraisals.

Caps (payment)
Consumer safeguards limiting the amount monthly payments on an adjustable rate mortgage may change during the life on the mortgage.

Adjustable Rate Mortgage (ARM)
A mortgage that is tied to an index that will adjust based on changes in the economy. ARMs commonly come in 2, 3, 5, and 7 year terms. The number of years your ARM is will be the number of years it will be fixed for. These loans are still amortized for the full 30 years.

Equity
The difference between what is owed on the property, and what the property could be sold for.

Blanket Mortgage
A mortgage which covers two pieces of real estate under one note.

Accrued Interest:
Interest accumulated on a loan since the last interest payment was made. The interest portion of a mortgage payment is used for the accrued interest in the prior month. For example your February 1st payment will pay for interest accrued in January.

Margin
The number of percentage points a lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Assessed Value

The value of real property as determined by a township, city, or county assessor. This figure is used for proprty tax purposes.

Balloon Mortgage:
Any mortgage that has amortized payments due for a specified term but has a lump sum payment due at an earlier stated term. For example a mortgage with payments based on a 30 year term but the loan is due in 20 years. This would mean that the remaining balance on the loan would be due in the 20th year

Discount Points

A discount point is a percentage of the total loan amount that is paid for a lower interest rate. Example 1 point would be 1% of the loan amount or $1000 dollars on a $100,000 loan.

Cloud on Title
A claim on the title of a property that, if true, will prevent a buyer from getting a clear title.

Acre
43,560 Feet = 4,840 square yards.

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.

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.

Closing Costs -
Closing cost are the expenses incurred in association with the mortgage application. These include the lender fees, title charges, recording fees, and any prepaid interests.

Underwriting

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness, their capacity to repay the loan, and the quality of the property itself.

Lock-In

A written agreement between the lender and borrower for a specified period of time in which the lender will hold a specific interest rate, origination and/or discount points.

Gift Letter
A letter or affidavit that indicates that part of a borrower's down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid

Loan to Value

The percentage ratio that is determined by dividing the loan amount by the value of the property. This percentage is a large factor in determining interest rates.

L.T.V.

The common terminology used when speaking of Loan to Value

Agency
An agent is a person authorized to represent his/her principle in business dealings with other parties.

Conforming Loan
a mortgage underwritten within the risk assessment guidelines promulgated by Fannie Mae and Freddie Mac, thereby eligible to be sold to the two secondary market powerhouses.

Good Faith Estimate (GFE)

An estimate of settlement charges paid by the borrower at closing. The Real Estate Settlement Procedures Act (RESPA) requires a Good Faith Estimate of settlement charges be provided to the borrower.

LIEN

The right to take and hold or sell the property of a debtor as security or payment for a debt or duty

Title Insurance

This is usually divided into two portions: Owner's Insurance and Lender's Insurance. Owner's Insurance covers the purchase price (or refinance value) of the home while the Lender's Insurance covers the loan amount. While the Owner's Insurance is optionable Lender's Insurance is not an option.

Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).

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.

Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Deed of Trust
A recorded security instrument that is used instead of a mortgage in the states of Alaska, Arizona, California, Colorado, Georgia, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Texas, Virginia and West Virginia. A DOT differs from a mortgage in that there is a third party, known as the trustee who holds the title to the property in trust for the lender, otherwise known as the beneficiary. By having the property in trust, the process of foreclosure is somewhat more expedient should the borrower, or trustor, default on the loan.

Mortgage Terminology Part 2 - Deed of Trust : An instrument that makes real property security for a loan; unlike a mortgage, may be foreclosed nonjudicially

Loan to Value Ratio: Also known as LTV ratio. The loan to value is the percentage of equity that you are borrowing from your home. For example:

If your home is worth $200,000 and you wanted a mortgage of $150,000, the Loan to Value ratio would be 75%, because you would be borrowing 75% of the home's value. Generally speaking, the higher the Loan to Value ratio, the higher the interest rate of the loan.



Equity: The difference between the current value of the home and the amount the owner still owes on the mortgage. In the example above, the same home valued at $200,000 with a mortgage balance of $150,000 would have $50,000 equity in the home.

Quit Claim Deed

A deed coveying the title to real property with the title in an "as is" condition. In other words, there are no expressed or implied guarantees or waranties that you will have clear and/or marketable title included with the deed.

Deficiency Judgment : a court judgment ordering a debtor to pay the difference between the amount of a debt and the proceeds raised by foreclosure and sale of the security property

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.

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.

FHLMC : Federal Home Loan Mortgage Corporation, "freddie Mac," a government agency that performs a similar function to that of FNMA

FNMA : the Fereral National Mortgage association, "Fannie Mae," a private corporation supervised by HUD; fnMA is a major secondary market investor

GNMA : Government National Mortgage Association, "Ginnie Mae," a government agency supervised by HUD; GNMA promotes investment in real estate by guaranteeing payment on FHA, fmHA and VA loans

Negative Armotization : an increase in an outstanding loan balance brought about by deferred interest

Note Rate : the interest rate specified in a promissory note; also called the coupon rate

Origination : the process of making a new loan

Margin : the difference between the index rate and interest charged on an ARM

Mortgage : an instrument wherein property is pledged as security for a debt, creating a lien on the security property; must be foreclosed judically

Mortgage-Backed Securities : instruments issued by various agencies such as GNMA and FHLMC to raise investment funds

Mortgagee : the one who receives a mortgage, usually the lender

Mortgagor : the person who gives a mortgage; the borrower

FHA : a government agency designed to aid the construction and real estate industries by providing mortgage insurance, among other programs

Gross Income : a person's income before deductions for income taxation

Interest Rate Cap : a limit on the amount that interest rates may be increased in an ARM

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.

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.

Mortgage Terminology Part 3 - Payment Adjustment Period : the minimum interval between successive adjustments of payments on an ARM or GPM

Payment Cap : a limit on the size of payments on ARMs

PMI : private mortgage insurance; insurance against loss from default on high loan-to-value conventional loans

Points : a point is one percent of a loan amount; also called discount points, they are charged by lenders in order to increase the yield on loans with lower than market interest rates

Promissory Note : written evidence of a debt

Purchase Money Loan : a loan made by a lender or a seller to a buyer, and used to finance a purchase of property

Qualifying : the process of checking to make sure that 1) a borrower is not likely to default, and 2) a property is worth enough to satisfy the debt if the borrower does default

Underwriting: the process of evaluating a loan application; the underwriter is the one who approves the loan

Verification of Deposit: a form sent by a lender to a bank requesting verification of a borrower's deposit(s) at the bank

Real Estate Contract : an installment sales contract for the purchase of real estate

Reamortization/ Recast : recalculation of level payments for a loan, necessitated by either a change in the loan term or an increase in the loan balance due to negative amortization

Reserve Requirement : the percentage of a bank's deposits that may not be loaned out by the bank

Secondary Financing: money borrowed from any source to pay a portion of the required down payment or settlement costs of a loan

Securities: instruments, such as mortgages and trust deeds, that pledge assets as security for a debt

Servicing: the process of collecting loan payments, keeping records and handling defaults