Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (Adjustable mortgage loans) or VRMs (variable-rate mortgages).
Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
Affordability Analysis
An analysis of a buyer's 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.
Amortization
The gradual repayment of a mortgage loan, both principal and interest, by installments.
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.
Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.
Appraisal
A written analysis prepared by a qualified appraiser and estimating the value of a property.
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Asset
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.)
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.
Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the stardard monthly payment schedule).
Cap
Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning and may cause negative amortization.
Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Closing
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement".
Closing Costs
These are expenses - over and above the price of the property - that are incurred by buyers and sellers then 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 county and the lenders used.
Combined Loan-to-Value (CLTV) Ratio
The CLTV ratio is the ratio of all secured loans on a property to the value of a property.
Conforming Loan
A conforming loan is a mortgage loan that conforms to GSE (Freddie Mac and Fannie Mae) guidelines such as loan amount.
Credit Report
A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts.
Credit Score
A credit score is a statistical number that evaluates a consumer's creditworthiness and is based on credit history. A person's credit score can range from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be. FICO score is a type of credit score created by Fair Isaac Corporation.
Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Delinquency
Failure to make mortgage payments on time.
Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
Equity
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount owed on all loans securing the property.
Escrow
An item of value, money or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of finds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
Escrow Disbursement
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
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.
First Mortgage
The primary lien against a property.
Fixed Installment
The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed-Rate Mortgage (FRM)
A mortgage with an interest rate that is fixed throughout the entire term of the loan.
Home Equity Loan (Closed End Loan)
A one time drawn home equity loan.
Home Equity Line of Credit (HELOC) (Open End Loan)
A home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed period where the collateral is the equity in your home.
Housing Expense Ratio
The percentage of gross monthly income budged to pay housing expenses.
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A combination fixed rate and adjustable rate loan - also called 3/1, 5/1, 7/1 - can offer the best of both worlds: lower interest rates (like ARMS) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 Loan" has a fixed monthly payment and interest rate for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.
Index
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. The rate changes for an adjustable rate mortgage (ARM). It is also known as "start rate" or "teaser".
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Interest
The fee charged for borrowing money.
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate as specified in the mortgage Note.
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate as specified in the mortgage Note.
Jumbo Loan
A jumbo loan is a mortgage loan that the loan amount exceeds the conforming loan limits.
Late Charge
The penalty a borrower must pay when a payment is made, a stated number of days (usually 15), after the due date.
Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt.
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.
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 mortgage. See cap.
Liquid Asset
A cash asset or an asset that is easily converted into cash.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80%.
Lock-In Period
The guarantee of an interest rate for a specified period of time by the lender, including loan term and points, if any, to be paid at closing. Short term locks (less than 21 days) are usually available after the lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Maturity
The date on which the principal balance of a loan becomes due and payable.
Mortgage
A legal document that pledges a property to the lender as security for a payment of a debt.
Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.
Mortgagor
The borrower in a mortgage agreement.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Origination Fee
A fee paid to a lender for processing a loan application. The origination fee can be a fixed amount or it can be stated in the form of points. One point is 1% of the mortgage amount.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment changes date occurs in the month immediately after the adjustment date.
Periodic Payment Cap
A limit on the amount that payment can increase or decrease during any one adjustment period.
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.
PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).
Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
Pre-Approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
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 are paid into an escrow account each month or not.
Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
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 percentage of income ratio and total debt obligations as a percent of income ratio.
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.
Recording
The noting in the register's office of the details of a property executed legal document, such as a deed, a mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Refinance
Paying off one loan with the proceeds from a new loan using the same property as security.
Security
The property that will be pledged as collateral for a loan
Servicer
An organization that collects principal and interest payments from a borrower and manages borrowers' escrow accounts. The servicer often services mortgage that have been purchased by an investor in the secondary mortgage market.
Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Treasury Index
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the result of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.