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Interest Only Mortgage
The right of the mortgage (lender) to demand the immediate repayment of the
mortgage loan balance upon the default of the mortgager (borrower), or by
using the right vested in the Due-on-Sale Clause.
Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a
pre selected index. Also sometimes known as the renegotiable rate mortgage,
the variable mortgage or the Canadian roll over mortgage.
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
Means loan payment by equal periodic payment calculated to pay off the debt
at the end of a fixed period, including accrued interest on the outstanding
balance. Comes from the French word, "mort", literally to kill the
Annual Percentage Rate (APR)
Is a interest rate reflecting the cost of a mortgage as a yearly rate. This
rate is likely to be higher than the stated note rate or advertised rate on
the mortgage, because it takes into account points and other credit cost. The
APR allows home buyers to compare different types of mortgages based on the
annual cost for each loan.
An estimate of the value of property, made by a qualified professional
called an "appraiser". There are different types of qualified
appraisers. The highest qualification is considered to be the MAI.
A local tax levied the County usually against a property for a specific
purpose, such as a sewer or street lights. Also can mean the assessed value of
the property. Similar, but not the same as an "appraisal" see above.
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. Most mortgages today are unassumable as Lenders have found
that assumed loans tend to have a far higher rate of default.
FHA loans closed before 12/15/89 and VA loans closed before 3/1/88 are
freely assumable with no qualifying.
Note that the original borrower is still just as liable for the loan as the
new home buyer unless the previous borrower gets a release from the Lender.
This is called "novation".
A balloon mortgage is one where a lump sum, the balance of the loan
principal, becomes payable at the end of the term. A mortgage can be interest
only with the whole principal due at the end of the term or it may be
calculated to amortize over a longer period, say 30 years, but with the
outstanding principal balance payable at the end of, say, 10 years.
A mortgage covering at least two pieces of real estate as security for the
same mortgage. This provides greater security for the Lender. It may be
possible to get a "partial" release so the Borrower can sell one of
the properties provided a suitable principal reduction is made.
One who applies for and receives a loan in the form of a mortgage with the
intention of repaying the loan in full. The mortgage is not actually the loan,
it just creates the security interest in the property. It is the promissory
note that spells out the repayment terms and interest.
An individual in the business of assisting in arranging funding or
negotiating contracts for a client buy who does not loan the money himself.
Brokers usually charge a fee or receive a commission for their services.
A limit on the amount the interest rate on an adjustable rate mortgage may
change per year and/or the life of the loan. For example a 4/1 cap would mean
a maximum interest increase of 4% over the life of the loan and no more than
1% each year.
Consumer safeguards which limit the amount monthly payments on an adjustable
rate mortgage may change. Mortgage may change per year and/or the life of the
The meeting between the buyer, seller and lender or their agents where the
property and funds legally changes hands. Also called settlement. Closing
costs usually include an origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed recording, credit report
charge and other costs assessed at settlement. The cost of closing usually are
about three to six percent of the mortgage amount. Commitment and agreement,
often in writing, between a lender and a borrower to loan money at a future
date subject to the completion of paperwork or compliance with stated
A report documenting the credit history and current status of a borrower's
credit standing. Credit is rated for mortgage purposes from A, excellent, down
to D, very poor. To obtain a conforming loan that can be resold to Fannie Mae,
the Borrower usually needs A grade credit.
We offer financing from A right down to D credit.
A promise by a lender to make a loan on specific terms or conditions to a
borrower or builder. A promise by an investor to purchase mortgages from a
lender with specific terms or conditions. Construction loan (interim loan) - A
loan to provide the funds necessary to pay for the construction of buildings
or homes. These are usually designed to provide periodic disbursements to the
builder as it progresses.
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.
A short term interim loan for financing the cost of construction. The lender
advance funds to the builder at periodic intervals as the work progresses.
A mortgage not insured by FHA or guaranteed by the VA.
Language often in a second mortgage that states that a failure to pay or a
default on the first mortgage is a default on the second mortgage.
Also that if the borrower has more than one mortgage with the same lender,
then a default on just one of the mortgages puts ALL the other mortgages into
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) or gross monthly income (conventional). See Housing
Deed of Trust
In many states, this document is used in place of a mortgage to secure the
payment of a note. It involves a third party, the trustee, who holds the deed
to the property.
Failure to meet legal obligations in a contract, specifically, failure to
make the monthly payments on a mortgage. This can also mean failure to pay
property taxes, maintain insurance on the property or even to maintain the
interior and exterior of the property.
see Negative Amortization
Failure to make payments on time. This can lead to foreclosure. See default.
Money paid to make up the difference between the purchase price and the
mortgage amount. Down payments usually are 10 to 20 percent of the sales price
on a conventional loan. VA loans have no downpayment but are only available to
Veterans who have not used up their VA entitlement. FHA loans are often as low
as 3% downpayment.
When the down payment is less than 20% the Lender will usually require PMI
(Private Mortgage Insurance) on a conventional loan, or MIP (Mortgage
Insurance Premium) on an FHA loan.
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
Money given by a buyer when making an offer to a seller as part of the
purchase price to bind a transaction or assure payment. It should be held in
escrow by the real estate company, a title company or an attorney. This is
usually returnable if the contract does not go through for valid reasons. It
may not be returnable if the buyer just changes his mind.
Refers to a neutral third party who carries out the instruction 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 home buyer pays
money for tax or insurance payments.
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, sex, marital status, handicap status or receipt income from
public assistance programs.
The difference between the fair market value and current indebtedness, also
referred to as the owner's interest.
The federal Home Loan Mortgage Corporation provides a secondary market for
saving and loans by purchasing their conventional loans. Also known as
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
The Federal National Mortgage Association is a secondary mortgage
institution which is the largest single holder of home mortgages in the United
States. FHMA buys VA, FHA and conventional mortgages from primary lenders.
Also known as "Fannie Mae."
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.
see Federal National Mortgage Association.
Federal Home Loan Bank Board (FHLBB)
A regulatory and supervisory agency for federally chartered savings
Federal Home Loan Mortgage Corporation (FHLMC)
also referred to as "Freddie Mac", is a quasi-government agency
that purchases conventional mortgages from insured depository institutions and
HUD approved mortgage bankers.
Federal National Mortgage Association (FNMA)
also know as "Fannie Mae" a taxpaying 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
see Federal Home Loan Mortgage Corporation
see Government National Mortgage Association
Government National Mortgage Association (GNMA)
also known as "Ginnie Mae", provides sources of funds for
residential mortgage, insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM)
A type of flexible-payment where the payments increase for a specified
period of time and then level off. This type of mortgage may have negative
amortization built into it.
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.
Hard Money Lender
Equity lenders who base their funding decisions on the unencumbered property
value and its salability. They do not calculate debt ratio and usually do not
take into account the borrower's credit and income. The combined loan-to-value
ratio is usually less than 65%. Funding can be very fast. Sometime in 2 days
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 and/or her net effective income (FHA / VA loans)
or gross monthly income (conventional loans). Also see Debt-to-Income Ratio.
That portion of a borrower's monthly payment 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.
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. The rate must be one that is outside the
influence of the lender.
A money source for a lender.
A construction loan made during completion of a building or a project. A
permanent loan usually replaces this loan after completion.
A loan which is larger (more than $203,250) than the limits set by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Because jumbo loans can not be funded by these two agencies, they
usually carry a higher interest rate.
A claim upon a piece of property for the payment of a debt or obligation.
The relationship between the amount of the mortgage loan and appraised value
of the property expressed as a percentage.
The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate.
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.
MIP: Mortgage Insurance Premium
MIP is the one-half percent borrowers pay each month on FHA insured mortgage
loans. It is insurance from FHA to the lender against incurring a loss due to
the borrower's default. On September 1, 1983 the MIP was changed to a one time
charge to the borrowers.
Money paid to insure the mortgage when the down payment is less than 20
percent. see Private Mortgage Insurance, FHA Mortgage Insurance.
The borrower or home owner.
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
principal balance of the loan. The danger of negative amortization is that the
home buyer ends up owing more than the original amount of the loan.
Net Effective Income
The borrower's gross income minus federal tax.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage
without the prior approval of the lender. Note: The signed obligation to pay a
debt, as a mortgage note.
Negotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. see Adjustable
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.
A long term mortgage, usually ten years or more.
Principal, Interest, Taxes and Insurance. Also called monthly housing
Points (Loan Discount Points)
Prepaid interest assessed at closing by the lender. Each point is equal to
one percent of the loan amount.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Necessary to create an escrow account or to adjust the seller's existing
account. Can include taxes, hazard insurance, private mortgage insurance and
A privilege in a mortgage permitting the borrower to make payments in
advance of their due date. This can enable the mortgage to be paid off much
more quickly, with a major savings in total interest costs.
Money charged for an early repayment of debt. Prepayment penalties are
allowed in some form in 36 states and the District of Columbia.
This is the risk to the Lender that the loan will be paid off before the end
of the term. It is considered to be a risk becuase loans are often refinanced
when interest rates drop. This means the Lender gets their capital back but
have to lend it out at a lower rate.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as savings and
loan association, commercial banks and mortgage companies. These lenders
usually sell their mortgages into the secondary mortgage markets such as FNMA
of GNMA, etc. The original lender will usually still service the loan, that
is, send the payment coupons or statements to the Borrower.
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 down payment, lenders will
allow a smaller down payment (as low as five percent in some cases). With the
smaller down payment loans, however, borrower's are usually required to carry
private mortgage insurance. Private mortgage insurance will require an initial
premium payment of one to five percent of your mortgage amount and may require
an additional monthly fee depending on your loan's structure.
Quit Claim Deed
Type of deed that transfers all the rights that grantor (giver) may have,
which might be none. Example, you could legally give someone a quit claim deed
of your rights in the Brooklyn Bridge. That does not mean that the person you
give the deed to now owns the Brooklyn Bridge.
A real estate broker or an associate holding active membership in a local
real estate board affiliated with the National Association of Realtors.
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. This
means the money for refinance is not disbursed till after the 3 days are up.
The only exception would be an emergency.
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records. The record is given
a official records book and page number making it easy to find.
Obtaining a new mortgage loan on a property already owned. Often to replace
existing loans on the property.
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law
that allows consumers to review information known or estimated settlement cost
once after application and once prior to or at a settlement. The law requires
lenders to furnish the information after application only.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the
borrower using using the borrower's equity in the home as Satisfaction of
Mortgage (The document issued by the mortgagee when the mortgage loan is paid
A mortgage that payments have been made on. The longer the seasoning and
payment history of the mortgage, the greater the likelihood it will be paid in
A mortgage made subsequent to another mortgage and subordinate to the first
one. If the borrower does not make payments on the first mortgage, they can
foreclose it and wipe out the interest of the second mortgage holder.
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
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
Interest which is computed only on the principal balance.
A measure of land, 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.
Equity created by a purchasers work on a property purchased.
A document that gives evidence of an individual's ownership of property
A policy, usually issued by a title insurance company which insures a home
buyer or lender against errors in the title search. The cost of the policy is
usually a function of the value of property, and is often borne by the
purchaser and /or seller.
An examination of municipal records to determine the legal ownership of the
property. Usually is performed by a title company
A federal law requiring disclosure of the Annual Percentage Rate to home
buyers shortly after they apply for a the loan.
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.
Interest charged in excess of the legal rate established by law.
Variable Rate Mortgage
see Adjustable Rate Mortgage
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the
status and balance of his or her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his or her position