Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
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 (A.P.R.)
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 point 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".
Balloon (payment) 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.
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.
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
A mortgage not insured by FHA or guaranteed by the VA.
A report documenting the credit history and current status of a borrower's credit standing.
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.
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Money paid to make up the difference between the purchase price and the mortgage amount.
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.
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.
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.
For Sale By Owner
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
This relief plan was created by Fannie Mae and Freddie Mac as a part of the stimulus package to help millions of homeowners to refinance their loans with low interest rates even if the appraisal value of their properties have dropped around 20%.
HELOC (Home Equity Line of Credit)
A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.
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.
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 relationship between the amount of the mortgage loan and the 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.
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
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.
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.
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
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).
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
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 5 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 you loan's structure.
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.
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.
The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions in order to strengthen its financial sector. It is the largest component of the government's measures in 2008 to address the subprime mortgage crisis.
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 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.
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.
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.
Verification of Deposit (VOD)
a document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE)
a document signed by the borrower's employer verifying his/her position and salary.