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7/23 and 5/25 Mortgages
Mortgages with a one time rate adjustment after seven years and five years
respectively.
Index
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.
Index
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.
Index
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 rate
mortgage or the Canadian rollover mortgage.
Index
Adjusted Basis
The cost of a property plus
the value of any capital expenditures for improvements to the property
minus any depreciation taken.
Index
Adjustment Date
The date that the interest
rate changes on an adjustable-rate mortgage (ARM).
Index
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.
Index
Adjustment Period
The period elapsing between
adjustment dates for an adjustable-rate mortgage (ARM).
Index
Affordability Analysis
An analysis of a buyers 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.
Index
Amortization
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.
Index
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.
Index
Annual percentage rate (A.P.R.)
APR is a 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 loans.
Index
Appraisal
An estimate of the value of
property, made by a qualified professional called an "appraiser".
Index
Appraised Value
An opinion of a property's
fair market value, based on an appraiser's knowledge, experience, and
analysis of the property.
Index
Assessment
A local tax levied against
a property for a specific purpose, such as a sewer or street lights.
Index
Assignment
The transfer of a mortgage
from one person to another.
Index
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.
Index
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.
Index
Assumption Fee
The fee paid to a lender (usually
by the purchaser of real property) when an assumption takes place.
Index
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 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.
Index
Balloon Payment
The final lump sum paid at
the maturity date of a balloon mortgage.
Index
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.
Index
Blanket Mortgage
A mortgage covering at least
two pieces of real estate as security for the same mortgage.
Index
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.
Index
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."
Index
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.
Index
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.
Index
Business Inventories And Sales
These figures measure the
inventories and sales of manufacturing, wholesalers, and retail establishments.
These figures are released monthly by the Bureau of Census. In most cases,
an increase in these numbers indicates an expanding economy which could
be inflationary. Bond Market Moves Down In Price.
Index
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.).
Index
Caps (interest)
Consumer safeguards which
limit the amount the interest rate on an adjustable rate mortgage which
may change per year and/or the life of the loan.
Index
Caps (payment)
Consumer safeguards which
limit the amount monthly payments on an adjustable rate mortgage may change.
Index
Capacity Utilization:
The capacity utilization rate
measures the percent of industrial output currently in use. A change in
the rate indicates a change in the direction of economic activity. As
the percentage rate moves closer to 90% the industrial output is practically
at full capacity and is inflationary. A number closer to 70% is recessionary.
A higher percentage indicates a stronger manufacturing sector and an expanding
economy which can be inflationary. Bond Market Moves Down in Price.
Index
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 DD-214 (Separation Paper) to the local VA office with VA form 1880
(request for Certificate of Eligibility).
Index
Certificate of Reasonable Value (CRV)
An appraisal issued by the
Veterans Administration showing the property's current market value.
Index
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).
Index
Change Frequency
The frequency (in months)
of payment and/or interest rate changes in an adjustable-rate mortgage
(ARM).
Index
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.
Index
Closing Costs
These are 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.
Index
COFI
Adjustable-rate mortgage with
rate that adjusts based on a cost-of-funds index, often the 11th District
Cost of Funds.
Index
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.
Index
Consumer Price Index (CPI):
The consumer price index is
an indicator of the general level of prices. Components include energy,
food and beverages, housing, apparel, transportation, medical care, and
entertainment. When the consumer price index goes up, it is a sign of
an inflationary environment. Consumers have to pay more for the same amount
of goods and services. Bond Market Moves Down In Price.
Index
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 from other sources.
Index
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.
Index
Conventional loan
A mortgage not insured by
FHA or guaranteed by the VA.
Index
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.
Index
Credit Report
A report documenting the credit
history and current status of a borrower's credit standing.
Index
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.
Index
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.
Index
Deed of trust
In many states, this document
is used in place of a mortgage to secure the payment of a note.
Index
Default
Failure to meet legal obligations
in a contract, specifically, failure to make the monthly payments on a
mortgage.
Index
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.
Index
Delinquency
Failure to make payments on
time. This can lead to foreclosure.
Index
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.
Index
Discount Point
see point
Index
Down Payment
Money paid to make up the
difference between the purchase price and the mortgage amount.
Index
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.
Index
Durable Goods Orders:
This gives a reading on the
country's future manufacturing activity. Durable goods include those manufactured
items with a normal life expectancy of three years or longer. An increase
in the amount of durable goods orders may indicate an expansion in the
economy and, if inflationary, the Federal Reserve could choose to tighten
money by raising interest rates. Bond Market Moves Down In Price.
Index
Earnest Money
Money given by a buyer to
a seller as part of the purchase price to bind a transaction or assure
payment.
Index
Effect Of Economic Indicators On Fixed Income Investments:
Market participants look to
U.S. Government economic releases as an indication of the economy's strength
and general direction. Overall, economic indicators reflect the rate of
economic growth and inflation which, in turn, affects interest rates.
There is an inverse relationship between interest rates and bond prices.
If the economic indicators indicate that the rate of inflation is on the
rise, it will most likely result in higher interest rates and lower bond
prices. Conversely, if these indicators indicate the rate of inflation
is falling this will result in lower interest rates and higher bond prices.
The following glossary defines what these indicators are and how they
might affect the bond market.
Index
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.
Index
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.
Index
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.
Index
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.
Index
Escrow Disbursements
The use of escrow funds to
pay real estate taxes, hazard insurance, mortgage insurance, and other
property expenses as they become due.
Index
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.
Index
Factory Orders:
Manufacturer's shipments,
inventories, and orders. Factory orders include shipments, inventories,
and new and unfilled orders. An increase in the factory order total may
indicate an expansion in the economy and could be an inflationary factor.
Bond Market Moves Down In Price.
Index
Fannie Mae
see Federal National Mortgage
Association.
Index
Farmers Home Administration (FmHA)
Provides financing to farmers
and other qualified borrowers who are unable to obtain loans elsewhere.
Index
FED Is Easing:
Exactly the opposite of Fed
tightening. The Federal Reserve feels that the economy is not growing
at the desired level and eases credit conditions by lowering interest
rates to help stimulate the economy. Bond Market Moves Up In Price.
Index
FED Is Tightening:
This term refers to efforts
by the Federal Reserve to curb excessive growth in the money supply. This
can be accomplished by raising the discount rate and/or increasing the
federal funds rate. Bond Market Moves Down In Price.
Index
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory
and supervisory agency for federally chartered savings institutions. Agency
is now called the Office of Thrift Supervision
Index
Federal Home Loan Mortgage Corporation(FHLMC) also called "Freddie
Mac"
Is a quasi-governmental agency
that purchases conventional mortgage from insured depository institutions
and HUD-approved mortgage bankers.
Index
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.
Index
Federal National Mortgage Association (FNMA) also know 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.
Index
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 ($155,250 as of 1/1/96), they are
generous enough to handle moderately-priced homes almost anywhere in the
country.
Index
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.
Index
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."
Index
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.
Index
First Mortgage
The primary lien against a
property.
Index
Fixed Installment
The monthly payment due on
a mortgage loan including payment of both principal and interest.
Index
Fixed Rate Mortgage
The mortgage interest rate
will remain the same on these mortgages throughout the term of the mortgage
for the original borrower.
Index
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.
Index
FNMA
The Federal National Mortgage
Association is a secondary mortgage institution which is the largest single
holder of home mortgages in the United States. FNMA buys VA, FHA, and
conventional mortgages from primary lenders. Also known as "Fannie
Mae."
Index
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.
Index
Freddie Mac
see Federal Home Loan Mortgage
Corporation
Index
Ginnie Mae
see Government National Mortgage
Association.
Index
Government National Mortgage Association (GNMA)
Also known as "Ginnie
Mae," provides sources of funds for residential mortgages, insured
or guaranteed by FHA or VA.
Index
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.
Index
Gross National Product (GNP):
The Gross National Product
is the broadest measure of the nation's production. It measures the market
value of all newly produced goods and services in the United States. When
GNP is down, it shows a slowing down in the economy. To counteract this,
the Federal Reserve may loosen money by lowering interest rates. Bond
Market Moves Up In Price.
Index
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.
Index
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.
Index
Guarantee Mortgage
A mortgage that is guaranteed
by a third party.
Index
Hazard Insurance
A form of insurance in which
the insurance company protects the insured from specified losses, such
as fire, windstorm and the like.
Index
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.
Index
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.
Index
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
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.
Index
Indexed rate
The sum of the published index
plus the margin. For example if the index were 9% and the margin 2.75%,
the indexed rate would be 11.75%. Often, lenders charge less than the
indexed rate the first year of an adjustable-rate mortgage.
Index
Industrial Production Index
The industrial production
index measures the monthly level of the physical output of the manufacturing,
mining, and gas and electric utility industries. When industrial production
is down, it indicates a slowing of economic growth and, therefore, the
Federal Reserve is inclined to allow interest rates to drop to stimulate
the economy. Bond Market Moves Up In Price.
Index
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."
Index
Installment
The regular periodic payment
that a borrower agrees to make to a lender.
Index
Insured Mortgage
A mortgage that is protected
by the Federal Housing Administration (FHA) or by private mortgage insurance
(MI).
Index
Interest
The fee charged for borrowing
money.
Index
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.
Index
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.
Index
Interest Rate Ceiling
For an adjustable-rate mortgage
(ARM), the maximum interest rate, as specified in the mortgage note.
Index
Interest Rate Floor
For an adjustable-rate mortgage
(ARM), the minimum interest rate, as specified in the mortgage note.
Index
Interim Financing
A construction loan made during
completion of a building or a project. A permanent loan usually replaces
this loan after completion.
Index
Investor
A money source for a lender.
Index
Jumbo Loan
A loan which is larger (more
than $322,700 as of 1/1/03) 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.
Index
Late Charge
The penalty a borrower must
pay when a payment is made a stated number of days (usually 15) after
the due date.
Index
Leading Economic Indicators:
This index is a composite
of 11 statistics designed to foretell economic activity 6 to 9 months
hence, (i.e. building permits, new orders for consumer goods and materials,
the average workweek, index of consumer expectations).
Index
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.
Index
Liabilities
A person's financial obligations.
Liabilities include long-term and short-term debt.
Index
Lien
A claim upon a piece of property
for the payment or satisfaction of a debt or obligation.
Index
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.
Index
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.
Index
Loan
A sum of borrowed money (principal)
that is generally repaid with interest.
Index
Loan-to-Value Ratio
The relationship between the
amount of the mortgage loan and the appraised value of the property expressed
as a percentage.
Index
Lock
Lender's guarantee that the
mortgage rate quoted will be good for a specific number of days from day
of application.
Index
Margin
The amount a lender adds to
the index on an adjustable rate mortgage to establish the adjusted interest
rate.
Index
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.
Index
Maturity
The date on which the principal balance of a loan becomes due and payable.
Index
Merchandise Trade Balance
Released monthly, this figure
measures the difference between imports and exports. When exports are
higher than imports, there is a surplus in the balance of trade. When
imports are higher than exports, there is a deficit. The import-export
differential is referred to as the trade gap.
Index
MIP (Mortgage Insurance Premium)
It is insurance from FHA to
the lender against incurring a loss on account of the borrower's default.
Index
Money Supply
The amount of money in circulation.
M1 = cash + regular demand deposits + other check-type deposits. M2 =
M1 + savings and small denomination time-deposits. When the money supply
figure is up, it is an inflationary factor and, therefore, generates concern
that the Federal Reserve will tighten money growth by allowing short-term
interest rates to rise. Bond Market Moves Down In Price.
Index
Monthly Fixed Installment
That 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.
Index
Mortgage
A legal document that pledges
a property to the lender as security for payment of a debt.
Index
Mortgage Banker
A company that originates
mortgages exclusively for resale in the secondary mortgage market.
Index
Mortgage Broker
An individual or company that
charges a service fee to bring borrowers and lenders together for the
purpose of loan origination.
Index
Mortgagee
The lender.
Index
Mortgage Insurance
Money paid to insure the mortgage
when the down payment is less than 20 percent. See private mortgage insurance,
FHA mortgage insurance.
Index
Mortgage Life Insurance
A type of term life insurance
In the event that the borrower dies while the policy is in force, the
debt is automatically paid by insurance proceeds.
Index
Mortgagor
The borrower or homeowner.
Index
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 home buyer ends up owing more than the original
amount of the loan.
Index
Net Effective Income
The borrower's gross income
minus federal income tax.
Index
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.
Index
Non-Farm Payroll
The non-farm payroll figure
is a component of total civilian employment and measures the number of
people employed in all activities except agriculture.
Index
Note
A legal document that obligates
a borrower to repay a mortgage loan at a stated interest rate during a
specified period of time.
Index
Office of Thrift Supervision (OTS)
The regulatory and supervisory
agency for federally chartered savings institutions. Formally known as
Federal Home Loan Bank Board.
Index
One-year adjustable
Mortgage whose annual rate
changes yearly. The rate is usually based on movements of a published
index plus a specified margin, chosen by the lender.
Index
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.
Index
Owner Financing (also known as "Owner Carry")
A property purchase transaction
in which the party selling the property provides all or part of the financing.
Index
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.
Index
Periodic Payment Cap
A limit on the amount that
payments can increase or decrease during any one adjustment period.
Index
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.
Index
Permanent Loan
A long term mortgage, usually
ten years or more. Also called an "end loan."
Index
PITI
Principal, Interest, Taxes
and Insurance. Also called monthly housing expense.
Index
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.
Index
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).
Index
Power of Attorney
A legal document authorizing
one person to act on behalf of another.
Index
Pre-Approval
The process of determining
how much money you will be eligible to borrow before you apply for a loan.
Index
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.
Index
Prepayment
A privilege in a mortgage
permitting the borrower to make payments in advance of their due date.
Index
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are
allowed in some form (but not necessarily imposed) in many states.
Index
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 to FNMA or GNMA, etc.
Index
Principal
The amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining balance
of a mortgage.
Index
Principal Balance
The outstanding balance of
principal on a mortgage not including interest or any other charges.
Index
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
that are paid into an escrow account each month or not.
Index
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.
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Producer Price Index (PPI)
The monthly producer price
index measures the level of prices for all goods produced and imported
for sale in the primary marketplace. Increase in the PPI tends to lead
other measures of inflation. Bond Market Moves Down In Price.
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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.
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Rate Lock
A commitment issued by a lender
to a borrower or other mortgage originator guaranteeing a specified interest
rate and lender costs for a specified period of time.
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Realtor®
A real estate broker or an
associate holding active membership in a local real estate board affiliated
with the National Association of Realtors.
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Real Estate Agent
A person licensed to negotiate
and transact the sale of real estate on behalf of the property owner.
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Real Estate Settlement Procedures Act (RESPA)
A consumer protection law
that requires lenders to give borrowers advance notice of closing costs.
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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.
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Recording Fees
Money paid to the lender for
recording a home sale with the local authorities, thereby making it part
of the public records.
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Refinance
Obtaining a new mortgage loan
on a property already owned. Often to replace existing loans on the property.
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Renegotiable Rate Mortgage
A loan in which the interest
rate is adjusted periodically. See adjustable rate mortgage.
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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 cost once after
application and once prior to or at a settlement. The law requires lenders
to furnish the information after application only.
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Retail Sales
Key components of retail sales
include automobiles, building materials, furniture, department store sales,
food stores, gasoline, clothing, restaurants and drugstores. High retail
sales are an indication of economic growth and an expanding economy. Bond
Market Moves Down In Price.
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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.
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Revolving Liability
A credit arrangement, such
as a credit card, that allows a customer to borrow against a preapproved
line of credit when purchasing goods and services.
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Satisfaction of Mortgage
The document issued by the
mortgagee when the mortgage loan is paid in full. Also called a "release
of mortgage."
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Second Mortgage
A mortgage made subsequent
to another mortgage and subordinate to the first one.
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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.
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Security
The property that will be
pledged as collateral for a loan.
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Seller Carry-back
An agreement in which the
owner of a property provides financing, often in combination with an assumable
mortgage. See owner financing.
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Servicer
An organization that collects
principal and interest payments from borrowers and manages borrowers’
escrow accounts. The servicer often services mortgages that have been
purchased by an investor in the secondary mortgage market.
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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.
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Settlement/Settlement Costs
see closing/closing costs
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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.
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Simple Interest
Interest which is computed
only on the principle balance.
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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.
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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.
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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.
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Sweat Equity
Equity created by a purchaser
performing work on a property being purchased.
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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.
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Title
A document that gives evidence
of an individual's ownership of property.
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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.
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Title Search
An examination of municipal
records to determine the legal ownership of property. Usually is performed
by a title company.
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Total Expense Ratio
Total obligations as a percentage
of gross monthly income including monthly housing expenses plus other
monthly debts.
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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.
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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.
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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.
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Unemployment Rate
This is the percent of the
civilian labor force currently unemployed. If unemployment figures are
up, it indicates a lack of expansion within the economy and is, therefore,
good for the bond market. Conversely, a big gain in employment would be
an obvious cue for the Federal Reserve to tighten (raise) either the federal
funds rate or the discount rate. Bond Market Moves Up In Price.
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Usury
Interest charged in excess
of the legal rate established by law.
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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.
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VA Mortgage Funding Fee
A premium of up to 1-7/8 percent
(depending on the size of the down payment) paid on a VA-backed 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.
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Variable Rate Mortgage (VRM)
see adjustable rate mortgage
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Verification of Deposit (VOD)
A document signed by the borrower's
financial institution verifying the status and balance of his/her financial
accounts.
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Verification of Employment (VOE)
A document signed by the borrower's
employer verifying his/her position and salary.
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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.
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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 top.
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