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Mortgage And Finance Terms |
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With so many unique terms in the mortgage and finance industry its easy for people to get confused. Read our Finance Terms cheet sheet and learn the different between an ARM and CAP.
- ARM: A mortgage whose interest rate changes
periodically based on the changes in a specified index.. Referred to as
an adjutstible rate loan
- Amortization: The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.
- APR: The cost of a loan stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee.
- Bond:
An interest-bearing certificate of debt with a maturity date. An
obligation of a government or business corporation. A real estate bond
is a written obligation usually secured by a mortgage or a deed of
trust.
- Cap: A provision of an adjustable-rate
mortgage that limits how much the interest rate or mortgage payments
may increase or decrease, There are typically initial, periodic and
lifetime cap's on a loan, refer to the note for clarification.
- Deed: The legal document conveying title to a property.
- EMD:
A deposit made by the potential home buyer to show that he or she is
serious about buying the house, often referred to as the earnest
deposit.
- Escrow Account: Lenders often
establish an account called escrow or impound account, to pay the tax
and insurance and other additional charges of your monthly mortgage
payment.
- Freddie Mac: A government-sponsored
institution that supports the secondary mortgage market by purchasing
mortgages from lenders and reselling them as securities.
- Federal Housing Administration:
A federal agency that issues first mortgages, enabling lenders to lend
a very high percentage of the sale price. Also known as FHA.
- Federal National Mortgage Association: A privately owned, congressionally chartered company that is the nation's largest mortgage investor (fannie mae).
- FHA Loan: A loan insured by the Federal Housing Administration.
- Finance Charge: The cost of interest and other charges involved in borrowing money.
- First Mortgage:
A mortgage which has priority over all other voluntary liens against a
certain property; used in states that secure loans against real
property with a mortgage.
- Fixed Rate Mortgage: A mortgage in which the interest rate and monthly principal and interest payments remain the same for the life of the loan.
- Foreclosure: A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.
- Gift Letter:
A written statement from friends or family that explains gift funds
given to a borrower to purchase a home, and states that no repayment is
expected.
- Good Faith Estimate: An estimate given to the borrower within three days of formal application that lists the costs they may incur at closing.
- Home Equity Line of Credit:
A loan, based on the borrower’s available equity in the home, that
allows the borrower to withdraw and repay available loan proceeds on an
ongoing basis.
- Index: The rate you pay directly related to a particular interest-rate index.
- Interest: The amount paid for the use of money, usually expressed as an annual percentage.
- Interest Rate: The interest charged by a lender for the use of money, expressed as a percentage.
- Jumbo Loan: A loan with a dollar amount that exceeds the statutory size limit purchase by Fannie Mae or Freddie Mac, presently $ 417,000
- LIBOR:
(London Inter Bank Offer Rate) ~ An interest rate charged among banks
in London for short-term loans denominated in a specific currency. A
common index for debt securities.
- Lien: A monetary claim against your property. Usually liens must be settled before the seller can take title.
- Line of Credit:
Type of loan in which the borrower may draw on funds at any time, up to
an established maximum limit; the borrower may borrow, repay, and
borrow again, any and all of the credit extended; a revolving loan.
- Margin: Percentage added to the index by the lender to determine the interest rate.
- Maturity Date: The date that a loan is due in full.
- Negative Amortization:
An increase in the outstanding mortgage balance that occurs when the
amount of interest due is greater than the borrower’s monthly
payment, and the difference is added to the mortgage principal.
- Non-conforming:
# A loan that is not eligible to be purchased by Fannie Mae or Freddie
Mac. A signed document in which a borrower agrees to repay a debt to a
lender within a certain timeframe and according to certain terms.
- Prepaid Interest: Money paid by the borrower to the lender for interest that accrues between the closing date and the end of the month.
- Prime Rate:
The most favorable interest rate charged by a commercial bank for short
term loans; a benchmark from which a bank computes an appropriate rate
of interest for a loan contract.
- Point: An amount equal to one percent of the principal amount of the mortgage.
- Principal: The balance on the loan amount, excluding interest.
- Private Mortgage Insurance (PMI): Insurance that protects a mortgage lender against loss in the event of default by a borrower.
- Rate Adjustment Period:
With most ARMs, any periodic adjustment in the interest rate changes
the payment. Adjustment periods tend to reflect the period of the index
of the most popular ARMs.
- Rate Cap: Consumer safeguards that protect the interest rate during the application and processing period.
- Refinance: The repayment of a debt from the proceeds of a new loan using the same property as security.
- Second Trust Deed: A loan on a property that was made after the first deed.
- Secondary Mortgage Market:
The market where lenders and investors buy and sell existing mortgages
or mortgage-backed securities, thereby providing funds for additional
mortgage lending.
- Servicing: The market where
lenders and investors buy and sell existing mortgages or
mortgage-backed securities, thereby providing funds for additional
mortgage lending.
- Subordination Agreement: An
agreement by which an encumbrance is made subject to a junior
encumbrance; a lender with a loan in second position agrees to stay in
second position on the property, even when the loan in first position
has been rewritten or refinanced.
- Term: The period of time during which a loan is repaid.
- Title: The right to ownership in real estate, which is transferred by a deed. Evidence of ownership in real estate.
- Title Insurance: Coverage that compensates the insured for any loss caused by defects of title.
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