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COMPREHENSIVE
MORTGAGE TERMS
Acceleration
The
lender’s right to demand the immediate repayment
of the balance of the mortgage loan if the borrower
defaults, or sells the property if there is a
Due-on-Sale Clause.
Adjustable
rate mortgage (ARM)
A
mortgage where the interest rate is adjusted periodically
based on an agreed index.
Adjustment
interval
Used
in an adjustable rate mortgage. It is the time
between changes in the interest rate and/or monthly
payment. It depends on the change in the index.
Usually once a year.
Annual
percentage rage (APR)
The
actual interest rate on a mortgage, as a yearly
rate. This rate is usually higher than the advertised
rate on the mortgage, because it takes into account
the “hidden costs” of the loan like
the points charged to get the loan, and other
credit costs. The APR allows you to compare different
types of mortgages based on the real annual cost
for each loan.
Appraisal
The
value of the property, determined by an expert
called an “appraiser”.
Assumption
The
buyer takes over the payments on an existing mortgage
due by the seller.
Balloon
(payment) mortgage
Small
payments for a short period of time and one large
payment for the remaining amount of the principal
and interest at a future agreed date.
Caps
(interest)
The
amount by which the interest rate on an adjustable
rate mortgage may change per year and/or the life
of the loan.
Caps
(payment)
The
amount by which monthly payments on an adjustable
rate mortgage may change.
Closing
The
time when the property and funds legally change
hands.
Closing
costs
Include
an origination fee, points, appraisal fee, title
search and insurance, taxes, deed recording fee
and credit report charge. Usually about 3% to
6% of the mortgage amount.
Conventional
loan
A
mortgage which is not insured by FHA.
Credit
Report
The
credit history of a borrower (see EasywayUSA Credit
Section).
Deed
of Trust
A
“mortgage” to secure the payment of
a loan.
Deferred
Interest
If
the monthly payment is less than required to pay
the interest, the unpaid interest is added to
the balance of the loan.
Due-on-Sale
Clause
A
clause in a loan agreement that allows the lender
to demand immediate payment of the balance of
the loan if the borrower sells the home.
Equal
Credit Opportunity Act (ECOA)
A
federal law that requires loans to be made without
discrimination based on race, color, religion,
national origin, age, sex, marital status or receipt
of income from public assistance programs.
Escrow
Agents
An
independent party who coordinates the sale by
paying existing loans; profit to the seller; records
mortgages in favor of lenders; pays existing taxes.
Federal
Home Loan Mortgage Corporation (FHLMC) (also called
“Freddie Mac”)
A
quasi-governmental agency that purchases conventional
mortgages from insured depository institutions
and HUD-approved mortgage brokers.
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.
Federal
National Mortgage Association (FNMA) (also known
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.
FHA
Loan
A
loan insured by the Federal Housing Administration
open to all qualified home purchasers. There
are limits to the size of FHA loans. They are
large enough, in many parts of the U.S.A., for
moderately priced homes.
Fixed
Rate Mortgage
The
interest rate remains the same on the mortgage
for the original borrower for the term of the
mortgage.
FNMA
Federal
National Mortgage Association is a secondary mortgage
institution which buys VA, FHA, and conventional
mortgages from primary lenders. Also known as
“Fannie Mae”.
Foreclosure
Repossession
of property because the borrower failed to comply
with the terms of the loan.
Graduated
Payment Mortgage (GPM)
A
flexible-payment mortgage where the payments reduce
over a period of time with negative amortization
consequences. (See Negative Amortization.)
Impound
An
amount added to the borrower’s monthly payments
to pay taxes, insurance, mortgage insurance, and
other items.
Index
It
is an interest rate, which is published and fluctuates.
Lenders measure the difference between the current
interest rate on an adjustable rate mortgage and
that earned by other investments (such as five-year
U.S. Treasury security yields or the monthly average
interest rate on loans closed by savings and loan
institutions or 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.
Jumbo
Loan
A
loan which is larger than the limits set by the
Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. This
amount is changed from time to time and in 2001
is a loan above $275,000. Jumbo loans are not
funded by FNMA and FMLMC so they have higher interest
rates.
Lien
Security
given over property to guarantee payment of a
debt.
Loan-to-Value
Ratio
The percentage of the loan when calculated against
the value of the property.
Margin
The
number of percentage points added to the index
on an adjustable rate mortgage to determine the
adjusted interest rate.
MIP
(Mortgage Insurance Premium)
FHA
insurance to the lender which protects loss to
the seller if the borrower defaults.
Mortgage
Insurance
Money
paid to insure the mortgage if the down payment
is less than 20%.
Mortgagee
The
lender.
Mortgagor
The
borrower.
Negative
Amortization
Occurs
when the monthly payments are not sufficient to
pay all the interest due on the loan. This unpaid
interest is added to the unpaid balance of the
loan. The amount owing can eventually exceed the
original amount of the loan.
Non-Assumption
Clause
A
statement in a mortgage which prohibits the assumption
of the mortgage by a new buyer without the prior
approval of the lender.
Origination
Fee
The
fee charged by a lender to make the loan which
may include preparing loan documents, and appraisal
of property. This is often stated as a percentage
of the loan.
Points
(loan discount points)
In
addition to the advertised interest rate, the
lender will charge extra for making the loan.
This is called “points”. One point
is equal to 1% of the loan.
Prepayment
A
right in a mortgage agreement which allows the
borrower to make payments before they are due.
Prepayment
Penalty
The
amount due by a borrower for paying a debt before
it is due. Prepayment penalties are permitted
in many states.
Principal
The
balance on a loan, without interest.
Private
Mortgage Insurance (PMI)
With
less than a 20% down payment, borrowers are usually
required to carry private mortgage insurance.
Private mortgage insurance usually requires an
initial premium payment and may require additional
monthly fees.
Realtor
A
real estate broker or salesperson who is a member
of a real estate board which is affiliated with
the National Association of Realtors.
Recording
Fees
Money
which is paid to officially register a home sale
in the public records.
Refinance
Taking
out a new mortgage on a property which you own.
It usually replaces an existing loan. Reason:
value of property increased and owner needs cash,
or to get a better interest rate.
Second
Mortgage
A
mortgage made after the first loan (mortgage).
The rights of this mortgage are secondary to the
first mortgage.
Secondary
Mortgage Market
The
sale of mortgages already made by primary mortgage
lenders to obtain more money to make more new
loans.
Shared
Appreciation Mortgage (SAM)
Where
the lender or someone who helps the borrower repay
the debt gets a share in the future value of the
property.
Title
A
document that proves that a person owns the property.
Title
Insurance
An
insurance policy that protects a buyer or lender
if someone has a better claim to ownership of
the property.
Title
Search
Checking
public records to see who owns a property. This
is usually done by a title company.
Truth-In-Lending
A
law where the Annual Percentage Rate (APR) of
a loan must be given to homebuyers when they apply
for the loan.
Wraparound
Mortgage
When
an existing assumable loan owed by the seller
is combined with a new loan made to the buyer.
The buyer then pays the second lender or the seller,
who then pays the first lender that portion due
to the first lender.
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