Question 1

Adjustable Rate

Accepted Answer

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Question 2

Amortization

Accepted Answer

A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Question 3

Annual Membership

Accepted Answer

An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Question 4

Annual Percentage Rate (APR)

Accepted Answer

The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Question 5

Application

Accepted Answer

An initial statement of personal and financial information which is required to approve your loan.

Question 6

Application Fee

Accepted Answer

Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Question 7

Appraisal

Accepted Answer

A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Question 8

Assumption of Mortgage

Accepted Answer

The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.

Question 9

Balloon Payment

Accepted Answer

A lump sum payment for the unpaid balance of the loan.

Question 10

Cap

Accepted Answer

The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Question 11

Cash Out

Accepted Answer

Receiving money back when refinancing your present mortgage.

Question 12

Ceiling

Accepted Answer

The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Question 13

Closing Costs

Accepted Answer

Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This can include lender fees, discount points, attorney fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Question 14

Conforming Loan

Accepted Answer

Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Question 15

Contract of Sale

Accepted Answer

The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Question 16

Credit Limit

Accepted Answer

The maximum amount that you can borrow under a home equity plan.

Question 17

Debt to Income Ratio (DTI)

Accepted Answer

The percentage of monthly financial obligations against monthly gross income. Front-end DTI calculates the total housing liability.  Back-end DTI calculates the total monthly housing liabilities + total monthly credit liabilities.

Question 18

Debt Service

Accepted Answer

The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Question 19

Deed of Trust

Accepted Answer

Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Question 20

Discount Points (or Points)

Accepted Answer

The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Question 21

Down Payment

Accepted Answer

The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Question 22

Due on Sale

Accepted Answer

A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Question 23

Effective Interest Rate

Accepted Answer

The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Question 24

Encumbrance

Accepted Answer

A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Question 25

Equity

Accepted Answer

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Question 26

FHA Loan

Accepted Answer

More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

Question 27

First Mortgage

Accepted Answer

A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Question 28

Fixed Rate

Accepted Answer

An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

Question 29

Good Faith Estimate

Accepted Answer

A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Question 30

Grace Period

Accepted Answer

For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Question 31

Hazard Insurance

Accepted Answer

A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

Question 32

Home Equity Line of Credit

Accepted Answer

A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Question 33

Home Equity Loan

Accepted Answer

A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Question 34

HUD I Settlement Statement

Accepted Answer

A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Question 35

Index

Accepted Answer

A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Question 36

Interest Rate

Accepted Answer

The periodic charge, expressed as a percentage, for use of credit.

Question 37

Jumbo Loan

Accepted Answer

Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.

Question 38

Loan to Value Ratio (LTV)

Accepted Answer

A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Question 39

Lock or Lock In

Accepted Answer

A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Question 40

Margin

Accepted Answer

An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Question 41

Minimum Payment

Accepted Answer

The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Question 42

Mortgage Banker

Accepted Answer

Originates mortgage loans, loaning you their funds and closing the loan in their name. Also refered to as a Loan Officer, Mortgage Consultant, Mortgage Specialist, or Loan Originator.

Question 43

Mortgage Broker

Accepted Answer

As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment bankers.

Question 44

Mortgage Insurance (MIP or PMI)

Accepted Answer

Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Question 45

Mortgage Loan

Accepted Answer

A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Question 46

Mortgagee

Accepted Answer

The lender in a mortgage loan transaction.

Question 47

Mortgagor

Accepted Answer

The borrower in a mortgage loan transaction.

Question 48

Negative Amortization

Accepted Answer

Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

Question 49

PITI

Accepted Answer

Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Question 50

Points

Accepted Answer

The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Question 51

Prepayment Penalty

Accepted Answer

A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

Question 52

Qualifying Ratios

Accepted Answer

Comparisons of a borrower's debts and gross monthly income.

Question 53

Right to Rescission

Accepted Answer

The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Question 54

Security Interest

Accepted Answer

An interest that a lender takes in the borrower's property to assure repayment of a debt.

Question 55

Servicing a Loan

Accepted Answer

The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Question 56

Title

Accepted Answer

The written evidence that proves the right of ownership of a specific piece of property.

Question 57

Title Insurance

Accepted Answer

Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Question 58

Transaction Fee

Accepted Answer

A fee which may be charged each time you draw on a home equity credit line.

Question 59

Underwriting

Accepted Answer

The process of verifying data and approving a loan.

Question 60

VA Loan

Accepted Answer

More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.

Question 61

Variable Rate

Accepted Answer

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

GLOSSARY OF TERMS

Adjustable Rate

Amortization

Annual Membership

Annual Percentage Rate (APR)

Application

Application Fee

Appraisal

Assumption of Mortgage

Balloon Payment

Cap

Cash Out

Ceiling

Closing Costs

Conforming Loan

Contract of Sale

Credit Limit

Debt to Income Ratio (DTI)

Debt Service

Deed of Trust

Discount Points (or Points)

Down Payment

Due on Sale

Effective Interest Rate

Encumbrance

Equity

FHA Loan

First Mortgage

Fixed Rate

Good Faith Estimate

Grace Period

Hazard Insurance

Home Equity Line of Credit

Home Equity Loan

HUD I Settlement Statement

Index

Interest Rate

Jumbo Loan

Loan to Value Ratio (LTV)

Lock or Lock In

Margin

Minimum Payment

Mortgage Banker

Mortgage Broker

Mortgage Insurance (MIP or PMI)

Mortgage Loan

Mortgagee

Mortgagor

Negative Amortization

PITI

Points

Prepayment Penalty

Qualifying Ratios

Right to Rescission

Security Interest

Servicing a Loan

Title

Title Insurance

Transaction Fee

Underwriting

VA Loan

Variable Rate