Look Up Table

Adjustable Rate Mortgage (ARM) - A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.

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.

Annual Percentage Rate (APR) - A stated interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing 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".

 

Assessment - A local tax levied against a property for a specific purpose, such as a sewer or street lights.

 

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.

B

Balloon (loan) mortgage - Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

 

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.

 

Broker - 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.

C

CAPS - Consumer safeguards for adjustable-rate mortgages that limit the amount monthly payments can increase. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.

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 is typically 3 percent to 6 percent of the mortgage amount.

Closing Costs - Costs and fees associated with the official change in ownership of the property and with obtaining your mortgage that are assessed at the closing or settlement. Closing costs include required certifications, insurance, taxes and other fees.

Conforming and Non-Conforming Loans - Types of loans available to different categories of borrowers: while conforming loans follow the strictest guidelines for eligibility, non-conforming loans are now offered by many lenders in the form of a range of programs which can often be tailored to individual circumstances.

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

D

Debt Consolidation - paying off, with the proceeds from a home equity loan, a number of higher-interest debts such as credit card balances.

Debt Service - the combined principal and interest you pay on loans each month.

Debt Reduction Plan - a strategy recommended for those borrowers wishing to use a home equity loan for debt consolidation; if you continue to run up credit cards, e.g., the whole plan will backfire and you could end up with more total debt than before. .

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

 

Delinquency -  Failure to make payments on time.

 

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.

 

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

E

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.

F

Federal Home Loan Mortgage Corporation (FHLMC) - Also called "Freddie Mac", the FHLMC is a quasi-governmental agency that purchases conventional mortgage 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 know as "Fannie Mae", it is 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.

 

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. The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."

 

Fixed Rate Mortgage - A mortgage interest rate that remains the same throughout the term of the mortgage.

FNMA - 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."

 

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.

G

Government National Mortgage Association (GNMA) -A government agency that provides security on government securities loans.

H

Home Equity - the part of your home that you own outright; that is, the difference between its appraised value and the balance of your mortgage loan.

I

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.

Interest - The sum paid for borrowing money.

J

Jumbo Loan - A loan over $275,001. This limit was 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.

L

Loan Proceeds - The money you borrow.

M

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 down payment is less than 20 percent.

Mortgagee - The lender.

Mortgagor - The borrower or homeowner.

P

PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) - The four components that are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.

Points (loan discount points) - Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (two points on a $100,000 mortgage would be $2,000).

Pre-approval or pre-qualification - An early assurance by a lender that you appear to meet the requirements for a specific type of loan.

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

Principal - The amount of debt left on a loan (not counting interest)

R

Refinance - Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property or gaining access to existing equity on your home.

Rural Housing Service - various programs available to aid in the development of rural America.

S

Settlement/Settlement Costs - See closing/closing costs

T

Two-Step Mortgage - A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often 7 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 7 or 10 years. Also called "Super Seven" or "Premier" mortgage.

V

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.

Variable Rate Mortgage (VRM) - See adjustable rate mortgage