Understanding Mortgage Terminology
A-C
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| Acceleration
Clause |
| It is
a provision in a mortgage that gives the lender the right
to demand repayment of the entire principal balance upon
the default of the borrower. |
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| Adjustable
Rate Mortgage |
| A mortgage,
which allows the lender to adjust the mortgage's interest
rate periodically on the basis of changes in a specified
index. Interest rates may move up or down, as market conditions
change. The change in interest rate will result in a change
in the periodic payments due under the mortgage. |
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| Agent |
| A person
authorized to act for and under the direction of another
person when dealing with third parties. |
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| Alternative
Financing |
| Mortgage
financing, usually provided by an institutional lender,
other than a 30-year Fixed Rate Mortgage. |
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| Amortization |
| Reducing
the principle and interest on a loan with a payment plan
that allows for equal payments to be made to the creditor
at consistent intervals over the life of the loan (the
amortization period). |
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| Amortization
Schedule |
| The time
table of the payments to be made on an amortized loan
showing the following information: the date and amount
of each payment, the amount of each payment which will
be applied to interest and to principal and the balance
of principal still outstanding on the loan after the payment
is made. |
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| Annual
Percentage Rate |
| A rate
designed to allow for the comparison of one type of loan
to another. The APR reflects the cost of your mortgage
loan as a yearly rate. It will often be higher than the
interest rate designated on the note because it includes
such items as interest, mortgage insurance, and loan origination
fee (points). |
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| Application |
| A printed
form used by a mortgage lender to record required information
concerning a prospective mortgage. |
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| Application
Fee |
| The fees
the lender charges the applicant. May include costs of
a property appraisal and a credit report on the applicant.
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| Appraisal |
| A written
analysis made by a qualified person setting forth an estimation
of the value of a property, usually after an inspection
of the property. The appraisal usually determines the
amount of money that a lender will loan on that property. |
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| Assessed
Valuation |
| The value
assigned to a property by a public tax assessor for purposes
of taxation. This valuation does not necessarily correspond
to the market valuation. |
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| Assessment |
| The process
of placing a value on property for purposes of taxation.
This may take the form of a levy against property for
a special purpose, such as a sewer assessment where the
property owner pays a share of the cost according to the
valuation of the property. |
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| Assets |
| Assets
refer to the value of the entire property and resources
of a person or corporation. A fund's assets generally
include the securities in its portfolio plus any cash.
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| Assumption |
| A mortgage
obligation that can be taken over by the buyer when a
home is sold. The new owner assumes the mortgage obligations
and assumes title to the property. |
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| Assumption
Fee |
| The fee
paid to a lender (usually by the purchaser of real property)
which results from the assumption of an existing mortgage. |
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| Balloon
Mortgages |
| Usually
a short-term fixed-rate loan that involves small payments
for a certain period of time with the balance due in a
single, large payment at a time specified in the contract. |
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| Balloon
Payment |
| When the
final installment payment on a note is greater than the
preceding installment payments that extinguishes the debt.
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| Basis
Point |
| One basis
point equals 1/100 of 1% in interest. Basis points are
used by Lenders to measure interest rates in yield calculations. |
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| Binder |
| A preliminary
agreement, which is written in evidence of insurance coverage
for a limited time. It is usually secured by the payment
of an earnest money deposit and is replaced later with
a permanent policy. |
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| Blanket
Mortgage |
| A mortgage
that covers two or more pieces of real estate for security
on a single loan. |
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| Borrower
|
| A person
or company (also know as Mortgagor) who receives funds
in the form of a loan in exchange for a written promise
to repay principal with interest. |
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| Bridge
Loan |
| A loan
used to fill a gap in financing. It is usually a temporary
mortgage to help a borrower obtain the necessary cash
funds to purchase another home, prior to the sale of their
currently owned home. |
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| Buydown |
| The payment
of extra money on a loan now so as to provide a lower
interest rate over either a given period or over the life
of the loan. |
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| Cash
Flow |
| The amount
of cash derived over a given period of time from an income
producing property, such as a rental house, after all
expenses of holding and carrying the property are paid.
Theoretically, the cash flow should be large enough to
pay all property expenses including mortgages, taxes,
etc. |
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| Cash
Out |
| The refinancing
of a mortgage in which the money received from the new
loan exceeds the amount due on the old loan. This refinance
transaction results in additional cash for the homeowner
that can be used for any purpose. |
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| Cash
To Close |
| Liquid
assets that are accessible to be used to pay the closing
cost in a mortgage transaction. |
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| Closing
|
| The culmination
of a real estate transaction in which documents are signed
and recorded, funds are exchanged and the property is
transferred. |
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| Closing
Costs |
| Expenses
(over and above the price of the property) incurred by
buyers and sellers in connection with the closing of a
mortgage loan. This usually involves an origination fee,
discount points, appraisal, credit report, title insurance,
attorney's fees, survey, and prepaid items such as taxes
and insurance escrow payments. |
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| Closing
Statement |
| A document
that details an account of the funds between a buyer and
seller received and paid at the closing. |
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| Co-Borrower
|
| An additional
individual who is both obligated on the loan and whose
name appears on all documents with equal legal obligations. |
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| Collateral
|
| Additional
security for a debt, such as the real estate pledged as
security for a mortgage. The lender has the right, if
the debt is not paid, to slll the collateral to recoup
the outstanding principal and interest on the loan. |
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| Commitment
Fee (Loan) |
| An up-front
fee paid by a potential borrower to a lender for the lender's
promise to lend money at a specified rate and within a
give time. |
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| Condominium
|
| A development
where individuals have title to their own dwelling units
in a multi-family structure with joint ownership of common
areas of structure and the land. |
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| Conforming
Loan |
| Conventional
home mortgages, first mortgages up to loan amounts mandated
by Congressional directive, which meets the qualifications
for sale or delivery to either the Federal National Mortgage
Association (FNMA) or the Federal Home Loan Mortgage Corporation
(FHLMC). |
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| Construction
Loan |
| A structured,
short-term loan to provide funds necessary to begin construction
on buildings or homes. |
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| Contingency
|
| A condition
that must occur before a contract is legally binding.
For example: The sale of a house is contingent upon the
buyer obtaining financing. |
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| Conventional
Mortgage |
| A mortgage
loan made by an institutional lender without the inclusion
of government guarantees such as VA or FHA loans. |
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| Conversation
Option |
| The right
for the borrower for a fee to convert an Adjustable Rate
Mortgage into a Fixed Rate Mortgage within a specific
time frame. |
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| Convertible
ARM |
| The convertible
ARM is a combination of both fixed-rate and adjustable
rate mortgages, allowing the best of both options in one
package. |
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| Co-Op |
| Short
for Cooperative, a structure of two or more units, owned
by a corporation that gives each resident the right to
occupy a specific apartment or unit. It is a mode of land
ownership where the occupiers of individual units in a
building own an interest in the Cooperative Corporation
that owns the whole property. |
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| Creative
Financing |
| When institutional
financing of the purchase of a property does not meet
the purchaser's need, another party may provide additional
financing. Creative financing is outside the normal practice
of residential financing because the lender does not have
to follow the same stringent rules governing the institutional
lenders. |
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| Current
Index |
