GLOSSARY
OF MORTGAGE TERMS
Amortize
Amortize means to pay off a loan with regular payments. Part of
each payment is applied to principal and to interest.
Adjustable
Rate Mortgage (ARM)
A mortgage which permits the lender to adjust the interest rate
periodically based on the movement of a specified index.
Appraisal
An appraisal is a report which evaluates the condition and the
value of a property.
Annual
Percentage Rate (APR)
The cost of your credit as a yearly interest rate ( not the same
as the note rate).
Balloon
Mortgage
A mortgage that has level monthly payments which are insufficient
to amortize the loan so that a balloon, or lump sum payment is due
at the end of the term. Frequently, balloon mortgages contain an opportunity
to refinance when the balloon payment is due.
Cap-Adjustment
An adjustment cap is the most your interest rate can be increased
or decreased each time your adjustable rate mortgage (ARM) is adjusted.
Cap-Lifetime
A lifetime cap, or ceiling, is the maximum rate your your adjustable
rate mortgage (ARM) loan can adjust over the entire term of the loan.
Closing
The final procedure in which documents are executed and/or recorded,
and the sale or loan is completed.
Closing
Costs
Closing costs are mortgage related expenses incidental to the
financing of real estate. They include expenses such as points, taxes,
title insurance, mortgage insurance, and attorney's fees.
Conventional
Loan
A loan underwritten according to guidelines established by Federal
National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation
(FHLMC) or a private investor and insured, if necessary, by a private
mortgage insurance company.
Deed
A deed is an instrument which transfers ownership from the seller
to the buyer upon sale.
Downpayment
Cash Portion paid by a buyer from his/her own dunds, as opposed
to that portion of the purchase price which is financed.
Escrow
Agent
A third party that, under written instructions, holds certain documents
signed by the buyer and/or the seller, as well as funds pending the
close of escrow.
Escrow
Closing
In certain regions, an escrow agent holds in escrow funds as well
as documents to be signed by both the buyer and seller. Once all conditions
of the closing have been satisified, the documents and the funds are
distributed by the escrow agent to the interested parties.
Escrow
Funds
Money held by the lender for payment of the taxes and insurance on
your home.
Federal
Housing Administration (FHA)
An agency of the federal goivernment which insures first mortgage
lenders against loss.
FHA
Loan
Loans insured by the FHA and underwritten according to their guidelines.
Fannie
Mae
Federal National Mortgage Association (FNMA). A private corporation
that purchases first mortgages from commercial banks, savings and
loans and mortgage bankers.
Freddie
Mac
Federal Home Loan Mortgage Corporation (FHMLC). A federal agency
that purchases first mortgages, both conventional and federally insured,
from members of the Federal Reserve System, and the Federal Home Loan
Bank System.
Fully
Assumable Mortgage
A mortgage which can be transferred from one owner to another
qualified borrower without an increase in interest rate.
Graduated
Payment Mortgage (GPM)
Mortgage payments that increase over the term of the loan to allow
for lower initial payments.
Index-ARM
The index is the base rate used to determine the interest rate
adjustment of an adjustable rate mortgage. The index is specified
in the mortgage note. The index rate, pluis a margin, also identified
in the note, equals the total interest rate charged.
Interest
Interest is the finance charge paid to a lender when money is borrowed.
Interest is figured as a percentage on the total amount borrowed.
Margin
The margin is the rate percentage a lender adds to the index rate
to determine the new interest rate on an adjustable rate mortgage.
Mortgage
/ Deed of Trust
An instrument executed by an owner of property, pledging that
property as security for payment of a debt.
Mortgage
Insurance
Mortgage Insurance protects the lender in case of borrower default.
It is required on many loans and the cost may be paid by the borrower
or lender.
Negative
Amortization
A portion of interest that is not covered by your monthly payments
and is added to the principal balance and increases the amount you
owe the lender.
Origination
Fee
A fee charged by a lender for making a real estate loan, usually
a percentage of the loan amount such as one percent.
Points
/ Discount
A point (or discount point) is equal to one percent of the amount
of your loan. Example: On a $100,000 loan, 1 point = $1,000 (Hint:
move the decimal point two places to the left.). Points typically
reduce the interest rate charged on the mortgage.
Prepayment
Prepayment means paying off all or part of the mortgage loan before
it is due. Most mortgages allow prepayment, but some charge a fee
if you pay ahead of schedule.
Principal
The principal is the amount of money borrowed. It is also the
base on which interest is figured. Usually, each mortgage payment
pays off some principal along with interest.
Real
Property
Real Property means land and anything permanently affixed to the
land. Real Property is also known as real estate.
Survey
A survey is mapping, or measurement of land which shows its location
and dimensions. It also shows the location and dimensions of any buildings
on that land.
Title
Evidence of right to ownership of land.
Title
Insurance
Insurance against loss resulting from title problems or issues
relating to a specific piece of real property.
Title
Search
A review of all recorded documents affecting a specific piece
of property to determine the present status of title.
Veterans
Administration
The Veterans Administration (VA) is an agengy of the federal government
that guarantees the lender against loss on loans made to eligible
veterans in the event of foreclosure.
VA
Funding Fee
A fee charged to the veteran by the VA for the guarantee of the
loan.
VA
Loan
A loan to an eligible veteran that is guaranteed by the VA and underwritten
according to their guidelines.
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