- 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.
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- Appraisal
- An estimate of the value of property, made by a qualified professional
called an "appraiser".
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- Assessment
- A local tax levied against a property for a specific purpose, such
as a sewer or street lights.
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- 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.
- 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.
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- 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.
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- 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.
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.
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.
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- Delinquency
- Failure to make payments on time.
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- 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.
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- Down
Payment - Money paid to make up the difference between
the purchase price and the mortgage amount.
- 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.
- 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.
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- 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."
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- 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."
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- 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.
Government
National Mortgage Association (GNMA) -A government agency
that provides security on government securities loans.
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.
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.
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.
Loan
Proceeds - The money you borrow.
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.
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)
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.
Settlement/Settlement
Costs - See closing/closing costs
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.
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
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