Mortgages with a one time rate adjustment after seven years and five years
respectively. TOP
3/1, 5/1, 7/1 and 10/1 ARMs
Adjustable-rate mortgages in which rate is fixed for three-year, five-year,
seven-year and 10-year periods, respectively, but may adjust annually after
that. TOP
Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the
mortgage loan balance upon the default of the mortgagor (borrower), or by using
the right vested in the Due-on-Sale Clause. TOP
Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a
pre-selected index. Also sometimes known as the renegotiable rate mortgage, the
variable rate mortgage or the Canadian rollover mortgage. TOP
Adjusted Basis
The cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken. TOP
Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM). TOP
Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate
and/or monthly payment, typically one, three or five years depending on the
index. TOP
Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage
(ARM). TOP
Affordability Analysis
An analysis of a buyers 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. TOP
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. TOP
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. TOP
Annual percentage rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest and loan
fees expressed as a yearly percentage rate. Because all lenders apply the same
rules in calculating the annual percentage rate, it provides consumers with a
good basis for comparing the cost of loans. TOP
Appraisal
An estimate of the value of property, made by a qualified professional called
an "appraiser". TOP
Appraised Value
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property. TOP
Assessment
A local tax levied against a property for a specific purpose, such as a sewer
or street lights. TOP
Assignment
The transfer of a mortgage from one person to another. TOP
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. TOP
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. TOP
Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an
assumption takes place. TOP
Balloon Mortgage
A loan which is amortized for a longer period than the term of the loan.
Usually this refers to a thirty-year amortization and a five year term. At the
end of the term of the loan, the remaining outstanding principal on the loan is
due. This final payment is known as a balloon payment. TOP
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage. TOP
Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly
payment schedule). The 26 (or possibly 27) biweekly payments are each equal to
one-half of the monthly payment required if the loan were a standard 30-year
fixed-rate mortgage. The result for the borrower is a substantial savings in
interest. TOP
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same
mortgage. TOP
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. TOP
Bridge Loan
A second trust that is collateralized by the borrower's present home allowing
the proceeds to be used to close on a new house before the present home is
sold. Also known as "swing loan."
TOP
Broker
An individual in the business of assisting in arranging funding or negotiating
contracts for a client but who does not loan the money himself. Brokers usually
charge a fee or receive a commission for their services. TOP
Buy-down
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. TOP
Cash Flow
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, maintenance,
utilities, etc.). TOP
Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable
rate mortgage which may change per year and/or the life of the loan. TOP
Caps (payment)
Consumer safeguards which limit the amount monthly payments on an adjustable
rate mortgage may change. TOP
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed
loans for homes, business and mobile homes. Certificates of eligibility may be
obtained by sending form DD-214 (Separation Paper) to the local VA office with
VA form 1880 (request for Certificate of Eligibility) TOP
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's
current market value TOP
Certificate of veteran status
The document given to veterans or reservists who have served 90 days of
continuous active duty (including training time) It may be obtained by sending
DD 214 to the local VA office with form 26-8261a (request for certificate of
veteran status. This document enables veterans to obtain lower down payments on
certain FHA insured loans). TOP
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM). TOP
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 usually are about 3
percent to 6 percent of the mortgage amount. TOP
Closing Costs
These are expenses - over and above the price of the property- that are
incurred by buyers and sellers when 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 country and the lenders used. TOP
COFI
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index,
often the 11th District Cost of Funds. TOP
Construction loan
A short term interim loan to pay for the construction of buildings or homes.
These are usually designed to provide periodic disbursements to the builder as
he or she progresses. TOP
Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to
determine a potential borrower's credit history. The agency gets data for these
reports from a credit repository and from other sources. TOP
Contract sale or deed:
A contract between purchaser and a seller of real estate to convey title after
certain conditions have been met. It is a form of installment sale. TOP
Conventional loan
A mortgage not insured by FHA or guaranteed by the VA. TOP
Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some
point during the term. Usually conversion is allowed at the end of the first
adjustment period. The conversion feature may cost extra. TOP
Credit Report
A report documenting the credit history and current status of a borrower's
credit standing. TOP
Credit Risk Score
A credit risk score is a statistical summary of the information contained in a
consumer's credit report. The most well known type of credit risk score is the
Fair Isaac or FICO score. This form of credit scoring is a mathematical summary
calculation that assigns numerical values to various pieces of information in
the credit report. The overall credit risk score is highly relative in the
credit underwriting process for a mortgage loan. TOP
Debt-to-Income Ratio
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. TOP
Deed of trust
In many states, this document is used in place of a mortgage to secure the
payment of a note. TOP
Default
Failure to meet legal obligations in a contract, specifically, failure to make
the monthly payments on a mortgage. TOP
Deferred interest
When a mortgage is written with a monthly payment that is less than required to
satisfy the note rate, the unpaid interest is deferred by adding it to the loan
balance. See negative amortization. TOP
Delinquency
Failure to make payments on time. This can lead to foreclosure. TOP
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. TOP
Money paid to make up the difference between the purchase price and the
mortgage amount. TOP
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand
immediate payment of the balance of the mortgage if the mortgage holder sells
the home. TOP
Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a
transaction or assure payment. TOP
Entitlement
The VA home loan benefit is called an entitlement (i.e. entitlement for a VA
guaranteed home loan). This is also known as eligibility. TOP
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. TOP
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.
TOP
Escrow
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. TOP
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due. TOP
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.
Provides financing to farmers and other qualified borrowers who are unable to
obtain loans elsewhere. TOP
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally
chartered savings institutions. Agency is now called the Office of Thrift
Supervision TOP
Federal Home Loan Mortgage Corporation(FHLMC) also called
"Freddie Mac"
Is a quasi-governmental agency that purchases conventional mortgage from
insured depository institutions and HUD-approved mortgage bankers. TOP
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. TOP
Federal National Mortgage Association (FNMA) also know as
"Fannie Mae"
A 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. TOP
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, they are generous enough to handle moderately-priced homes almost
anywhere in the country. TOP
FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing to
insure the loan with FHA. In addition, FHA mortgage insurance requires an
annual fee of up to 0.5 percent of the current loan amount, paid in monthly
installments. The lower the down payment, the more years the fee must be paid. TOP
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for
savings and loans by purchasing their conventional loans. Also known as
"Freddie Mac." TOP
Firm Commitment
A promise by FHA to insure a mortgage loan for a specified property and
borrower. A promise from a lender to make a mortgage loan. TOP
The monthly payment due on a mortgage loan including payment of both principal
and interest. TOP
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout
the term of the mortgage for the original borrower. TOP
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to
amortize the remaining balance, at the interest accrual rate, over the
amortization term. TOP
FNMA
The Federal National Mortgage Association is 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." TOP
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. TOP
Also known as "Ginnie Mae," provides sources of funds for residential
mortgages, insured or guaranteed by FHA or VA. TOP
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified
period of time and then level off. This type of mortgage has negative
amortization built into it. TOP
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an
established period of time. The increased amount of the monthly payment is
applied directly toward reducing the remaining balance of the mortgage. TOP
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by
another if the original party fails to pay or perform according to a contract. TOP
Guarantee Mortgage
A mortgage that is guaranteed by a third party. TOP
Hazard Insurance
A form of insurance in which the insurance company protects the insured from
specified losses, such as fire, windstorm and the like. TOP
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing
expenses are divided by his/her gross monthly income. See debt-to-income ratio. TOP
HUD-1 statement
A document that provides an itemized listing of the funds that are payable at
closing. Items that appear on the statement include real estate commissions,
loan fees, points, and initial escrow amounts. Each item on the statement is
represented by a separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's net proceeds
and the buyer's net payment at closing. TOP
Impound
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. TOP
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. TOP
Indexed rate
The sum of the published index plus the margin. For example if the index were
9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders
charge less than the indexed rate the first year of an adjustable-rate
mortgage. TOP
Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of
closing. This rate changes for an adjustable-rate mortgage (ARM). It's also
known as "start rate" or "teaser." TOP
Installment
The regular periodic payment that a borrower agrees to make to a lender. TOP
Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by
private mortgage insurance (MI). TOP
The percentage rate at which interest accrues on the mortgage. In most cases,
it is also the rate used to calculate the monthly payments. TOP
Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account.
That money is then released each month to reduce the mortgagor's monthly
payments during the early years of a mortgage. TOP
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note. TOP
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note. TOP
Interim Financing
A construction loan made during completion of a building or a project. A
permanent loan usually replaces this loan after completion. TOP
A loan which is larger (more than $359,650 as of 1/1/05) than the limits 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. TOP
Late Charge
The penalty a borrower must pay when a payment is made a stated number of days
(usually 15) after the due date. TOP
Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home
buyers to lease a home with an option to buy. Each month's rent payment
consists of principal, interest, taxes and insurance (PITI) payments on the
first mortgage plus an extra amount that accumulates in a savings account for a
down payment. TOP
Liabilities
A person's financial obligations. Liabilities include long-term and short-term
debt. TOP
Lien
A claim upon a piece of property for the payment or satisfaction of a debt or
obligation. TOP
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. TOP
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 loan. See cap. TOP
Loan
A sum of borrowed money (principal) that is generally repaid with interest. TOP
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage. TOP
Lock
Lender's guarantee that the mortgage rate quoted will be good for a specific
number of days from day of application. TOP
Margin
The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate. TOP
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. TOP
Maturity
The date on which the principal balance of a loan becomes due and payable. TOP
MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of
the borrower's default. TOP
Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and
interest. When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction and doesn't cover all of
the interest. The loan balance therefore increases instead of decreasing. TOP
Mortgage
A legal document that pledges a property to the lender as security for payment
of a debt. TOP
Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary
mortgage market. TOP
Mortgage Broker
An individual or company that charges a service fee to bring borrowers and
lenders together for the purpose of loan origination. TOP
Money paid to insure the mortgage when the down payment is less than 20
percent. See private mortgage insurance, FHA mortgage insurance. TOP
Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the
policy is in force, the debt is automatically paid by insurance proceeds. TOP
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. TOP
Net Effective Income
The borrower's gross income minus federal income tax. TOP
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage
without the prior approval of the lender. Note: The signed obligation to pay a
debt, as a mortgage note. TOP
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated
interest rate during a specified period of time. TOP
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board TOP
One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on
movements of a published index plus a specified margin, chosen by the lender. TOP
Origination Fee
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. TOP
Owner Financing
A property purchase transaction in which the party selling the property
provides all or part of the financing. TOP
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate
mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment
change date occurs in the month immediately after the adjustment date. TOP
Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one
adjustment period. TOP
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. TOP
Permanent Loan
A long term mortgage, usually ten years or more. Also called an "end loan." TOP
PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense. TOP
Pledged account Mortgage (PAM):
Money is placed in a pledged savings account and this fund plus earned interest
is gradually used to reduce mortgage payments. TOP
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). TOP
Power of Attorney
A legal document authorizing one person to act on behalf of another. TOP
Pre-Approval
The process of determining how much money you will be eligible to borrow before
you apply for a loan. TOP
Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing escrow
account. Can include taxes, hazard insurance, private mortgage insurance and
special assessments. TOP
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance
of their due date. TOP
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed
in some form (but not necessarily imposed) in many states. TOP
Primary Mortgage Market
Lenders, such as savings and loan associations, commercial banks, and mortgage
companies, who make mortgage loans directly to borrowers. These lenders
sometimes sell their mortgages to the secondary mortgage markets such as to FNMA
or GNMA, etc. TOP
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that
reduces the remaining balance of a mortgage. TOP
Principal Balance
The outstanding balance of principal on a mortgage not including interest or
any other charges. TOP
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 that are paid into an escrow account each month or not. TOP
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 3 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 your
loan's structure. TOP
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 percent of income
ratio and total debt obligations as a percent of income ratio. TOP
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. TOP
Realtor?
A real estate broker or an associate holding active membership in a local real
estate board affiliated with the National Association of Realtors. TOP
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf
of the property owner. TOP
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance
notice of closing costs. TOP
Recission
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. TOP
Recording Fees
Money paid to the lender for recording a home sale with the local authorities,
thereby making it part of the public records. TOP
Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace
existing loans on the property. TOP
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See adjustable rate
mortgage. TOP
RESPA
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. TOP
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower
using the borrower's equity in the home as collateral for and repayment of the
loan. TOP
Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow
against a preapproved line of credit when purchasing goods and services. TOP
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full.
Also called a "release of mortgage." TOP
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first
one. TOP
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain
more funds to originate more new loans. It provides liquidity for the lenders. TOP
Security
The property that will be pledged as collateral for a loan. TOP
Seller Carry-back
An agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage. See owner financing. TOP
Servicer
An organization that collects principal and interest payments from borrowers
and manages borrowers? escrow accounts. The servicer often services mortgages
that have been purchased by an investor in the secondary mortgage market. TOP
Servicing
All the steps and operations a lender performs to keep a loan in good standing,
such as collection of payments, payment of taxes, insurance, property
inspections and the like. TOP
A mortgage in which a borrower receives a below-market interest rate in return
for which the lender (or another investor such as a family member or other
partner) receives a portion of the future appreciation in the value of the
property. May also apply to mortgage where the borrowers shares the monthly
principal and interest payments with another party in exchange for part of the
appreciation. TOP
Simple Interest
Interest which is computed only on the principle balance. TOP
Standard Payment Calculation
The method used to determine the monthly payment required to repay the
remaining balance of a mortgage in substantially equal installments over the
remaining term of the mortgage at the current interest rate. TOP
Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting in increased payments as
well. At the end of the specified period, the rate and payments will remain
constant for the remainder of the loan. TOP
Survey
A measurement of land, prepared by a registered land surveyor, showing the
location of the land with reference to known points, its dimensions, and the
location and dimensions of any buildings. TOP
Sweat Equity
Equity created by a purchaser performing work on a property being purchased. TOP
Third-party Origination
When a lender uses another party to completely or partially originate, process,
underwrite, close, fund, or package the mortgages it plans to deliver to the
secondary mortgage market. TOP
Title
A document that gives evidence of an individual's ownership of property. TOP
Title Insurance
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. TOP
Title Search
An examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
TOP
Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly
housing expenses plus other monthly debts. TOP
Truth-In-Lending
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. TOP
Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a
specified number of years (most often seven 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 seven or 10 years. also called "Super Seven" or "Premier"
mortgage. TOP
Underwriting
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. TOP
Usury
Interest charged in excess of the legal rate established by law. TOP
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. TOP
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down payment)
paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down
payment, this would amount to $1,406 either paid at closing or added to the
amount financed. TOP
A document signed by the borrower's financial institution verifying the status
and balance of his/her financial accounts. TOP
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and
salary. TOP
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to
originate loans which are to be sold later in the secondary mortgage market (or
to investors). When the prime rate of interest is higher on short term loans
than on mortgage loans, the mortgage firm has an economic loss which is offset
by charging a warehouse fee. TOP
Wraparound mortgage
Results when an existing assumable loan is combined with a new loan, resulting
in an interest rate somewhere between the old rate and the current market rate.
The payments are made to a second lender or the previous homeowner, who then
forwards the payments to the first lender after taking the additional amount
off the top. TOP
Licensed Mortgage Banker NYS & NJS Departments of Banking
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