- 7/23 and 5/25 Mortgages
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Mortgages with a one time rate adjustment after seven years and five years respectively.
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- 3/1, 5/1, 7/1 and 10/1 ARMs
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Adjustable-rate mortgages in which rate is fixed for three-year, five-year, seven-year
and ten-year periods, respectively, but may adjust annually after that.
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Schedule a free
consultation with our home loan experts.
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- Acceleration
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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.
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- Adjustable rate mortgage (ARM)
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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. - A mortgage where the
interest rate is not fixed, but changes during the life of the loan in line with
movements in an index rate. You may also see ARMs referred to as AMLs
(adjustable mortgage loans) or VRMs (variable-rate mortgages).
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- Adjustment interval
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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.
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- Agreement of Sale
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A written agreement or
contract between seller and purchaser in which they reach a meeting of minds on
the terms and conditions of the sale. Often called a deposit receipt.
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- Air Rights
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The rights in real property
to use the air space above the surface of the land.
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- Alienation
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The transferring of property
to another; the transfer of property and possession of lands, or other things,
from one person to another.
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- Alienation Clause
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A clause that gives the
lender the right to call a loan upon sale of real estate. Also called
due-on-sale clause.
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- Allodial Tenure
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A real property ownership
system where ownership may be complete except for those rights held by
government. Allodial is in contrast to feudal tenure.
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- Amortization
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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.
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- Amortized Loan
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A loan that is completely
paid off, interest and principal, by a series of regular payments that are
equal or nearly equal. Also called a level payments loan.
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- Annual percentage rate (APR)
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A measure of the cost of credit, expressed as
a yearly rate. It includes interest as well as other charges. Because all
lenders follow the same rules to ensure the accuracy of the annual percentage
rate, it provides consumers with a good basis for comparing the cost of loans,
including mortgage plans.
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- Annuity
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A series of assured equal or
nearly equal payments to be made over a period of time or it may be a lump-sum
payment to be made in the future. The series of installment payments due to
the landlord under a lease is an annuity. In real estate finance we are most
concerned with the first definition.
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- Anticipation, Principle of
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Affirms that value is created
by anticipated benefits to be derived in the future.
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- Appraisal
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An estimate or opinion of
value; a conclusion resulting from the analysis of facts.
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- Appraiser
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One qualified by education,
training, experience, and tested by the state, who is hired to estimate the
value of real and personal property based on experience, judgment, facts, and
use of formal appraisal process.
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- Assessment
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A local tax levied against a property for a specific purpose, such as a sewer or street
lights.
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- Assumption fee
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A lender's charge for
changing over and processing new records for a new owner who is assuming an
existing loan.
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- Assumption
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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. - When a home is sold, the
seller may be able to transfer the mortgage to the new buyer. This means the
mortgage is assumable. Lenders generally require a credit review of the new
borrower and may charge a fee for the assumption. Some mortgages contain a
due-on-sale clause, which means that the mortgage may not be transferable to a
new buyer. Instead, the lender may make you pay the entire balance that is due
when you sell the home. Assumption options can help you attract buyers if you sell
your home.
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Schedule a free
consultation with our home loan experts.
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- Balloon Mortgage
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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.
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- Blanket Mortgage
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A mortgage covering at least two pieces of real estate as security for the same
mortgage.
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- Borrower (Mortgagor)
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One who applies for and receives a loan in the form of a mortgage with the intention of
repaying the loan in full.
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- Broker
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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.
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- Buy-down
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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. - With a buy down, the seller
pays an amount to the lender so that the lender can give you a lower rate and
lower payments, usually for an early period in an ARM. The seller may increase
the sales price to cover the cost of the buy down. Buy downs can occur in all
types of mortgages, not just ARMs.
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Schedule a free
consultation with our home loan experts.
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- Cash Flow
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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.).
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- Caps (interest)
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Consumer safeguards which limit the amount of interest rate on an adjustable rate
mortgage which may change either at each adjustment or during the life of the mortgage.
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- Caps (payment)
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Consumer safeguards which limit the amount on monthly payments of an adjustable rate
mortgage which may change either at each adjustment or during the life of the mortgage. Payment caps don't limit the
amount of interest the lender is earning, so they may cause negative amortization.
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- Certificate of Eligibility
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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).
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- Certificate of Reasonable Value (CRV)
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An appraisal issued by the Veterans Administration showing the property's current market
value
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- Certificate of veteran status
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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).
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- Closing
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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.
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- COFI
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Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index, often
the 11th District Cost of Funds.
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- Construction loan
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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 progresses.
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- Contract sale or deed:
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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.
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- Conventional loan
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A mortgage not insured by FHA or guaranteed by the VA.
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- Conversion Clause
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A provision in some ARMs
that allows you to change the ARM to a fixed-rate loan at some point during the
term. Usually conversion is allowed at the end of the first adjustment period.
At the time of the conversion, the new fixed rate is generally set at one of the
rates then prevailing for fixed rate mortgages. The conversion feature may be
available at extra cost.
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- Credit Report
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A report documenting the credit history and current status of a borrower's credit
standing.
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Schedule a free
consultation with our home loan experts.
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- Debt-to-Income Ratio
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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.
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- Deed of trust
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In many states, this document is used in place of a mortgage to secure the payment of a
note.
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- Default
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Failure to meet legal obligations in a contract, specifically, failure to make the
monthly payments on a mortgage.
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- Deferred interest
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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
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- Delinquency
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Failure to make payments on time. this can lead to foreclosure.
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- Department of Veterans Affairs (VA)
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An independent agency of the federal government which guarantees long-term, low-or
no-down payment mortgages to eligible veterans.
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- Discount Point
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In an ARM with an initial
rate discount, the lender gives up a number of percentage points in interest to
give you a lower rate and lower payments for part of the mortgage term (usually
for one year or less). After the discount period, the ARM rate will probably go
up depending on the index rate. - see point
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- Down Payment
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Money paid to make up the difference between the purchase price and the mortgage amount.
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- Due-on-Sale-Clause
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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.
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Schedule a free
consultation with our home loan experts.
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- Earnest Money
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Money given by a buyer to a seller as part of the purchase price to bind a transaction
or assure payment.
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- Entitlement
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The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home
loan. This is also known as eligibility.
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- Equal Credit Opportunity Act (ECOA)
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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.
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- Equity
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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.
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- Escrow
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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.
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Schedule a free
consultation with our home loan experts.
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- Fannie Mae
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see Federal National Mortgage Association.
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- Farmers Home Administration (FmHA)
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Provides financing to farmers and other qualified borrowers who are unable to obtain
loans elsewhere.
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- Federal Home Loan Bank Board (FHLBB)
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The former name for the regulatory and supervisory agency for federally chartered
savings institutions. Agency is now called the Office of Thrift Supervision.
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- Federal Home Loan Mortgage Corporation (FHLMC) also called "Freddie
Mac",
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Is a quasi-governmental agency that purchases conventional mortgage from insured
depository institutions and HUD-approved mortgage bankers.
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- Federal Housing Administration (FHA)
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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.
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- Federal National Mortgage Association (FNMA) also know as "Fannie
Mae"
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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.
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- FHA loan
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A loan insured by the Federal Housing Administration open to all qualified home
purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they
are generous enough to handle moderately-priced homes almost anywhere in the country.
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- FHA mortgage insurance
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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.
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- FHLMC
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The Federal Home Loan Mortgage Corporation provides a secondary market for savings and
loans by purchasing their conventional loans. Also known as "Freddie Mac."
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- Firm Commitment
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A promise by FHA to insure a mortgage loam for a specified property and borrower. A
promise from a lender to make a mortgage loan.
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- Fixed Rate Mortgage
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The mortgage interest rate will remain the same on these mortgages throughout the term
of the mortgage for the original borrower.
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- FNMA
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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."
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- Foreclosure
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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.
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- Freddie Mac
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see
Federal Home Loan Mortgage Corporation.
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Schedule a free
consultation with our home loan experts.
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- Ginnie Mae
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see Government National Mortgage Association.
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- Government National Mortgage Association (GNMA)
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Also known as "Ginnie Mae", provides sources of funds for residential
mortgages, insured or guaranteed by FHA or VA.
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- Graduated Payment Mortgage (GPM)
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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.
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- Guaranty
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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.
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Schedule a free
consultation with our home loan experts.
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- Hazard Insurance
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A form of insurance in which the insurance company protects the insured from specified
losses, such as fire, windstorm and the like.
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- Housing Expenses-to-Income Ratio
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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.
Schedule a free
consultation with our home loan experts.
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- Impound
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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.
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- Index
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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.
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- Indexed rate
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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.
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- Interim Financing
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A construction loan made during completion of a building or a project. A permanent loan
usually replaces this loan after completion.
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- Investor
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A money source for a lender.
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Schedule a free
consultation with our home loan experts.
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- Jumbo Loan
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A loan which is larger (more than $240,000 as of 1/1/99) 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.
