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APPRAISAL
- an estimate of the value of a property, made by a qualified
professional called an appraiser.
BALLOON
(PAYMENT) MORTGAGE - usually a short-term fixed-rate loan which
involves small payments for a certain period of time and one large
payment for the remaining amount of the principal at a time
specified in the contract.
BIWEEKLY MORTGAGE - a type of fixed-rate mortgage with
payments for half the usual monthly amount scheduled every two
weeks. Because you make the equivalent of 13 months of payments
every year, the loan term is shortened from 30 years to 18 or 19
years, and total interest cost are substantially lower.
CAPS
- consumer safeguards for adjustable-rate mortgages that limit the
amount monthly payments can increase. An interest rate cap limits
the amount the interest can change, while a payment cap limits the
increase in monthly payment to a specific dollar amount.
CLOSING -
the meeting between the buyer, seller and lender (or their agents)
where the property and funds legally change hands. Also called
settlement.
CLOSING
COSTS - the costs and fees associated with the official change
in ownership of the property and with obtaining your mortgage that
are assessed at the closing or settlement. Closing costs include
required certifications, insurance, taxes and other fees, and
typically total between 3 and 6 percent of the mortgage amount.
CREDIT
REPORT - a report that documents a borrower's credit history and
current status. Borrowers can examine their own credit reports,
although most credit reporting companies charge a fee to provide a
report.
DEBT-TO-INCOME
RATIO - 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 net effective income (FHA/VA loans) or gross
monthly income (conventional loans).
DOWN PAYMENT - an amount paid in cash to the seller when a home
is purchased. The down payment is the difference between the
purchase price and the mortgage amount, and is traditionally 10 to
20 percent of the purchase price, although many loans are now
available with smaller down payments.
EQUITY
- the difference between the fair market value and current
indebtedness, also referred to as the owner's interest.
ESCROW
- a special account set up by the lender in which money is held to
pay for taxes and insurance. "Escrow" can also refer to a
third party who carries out the instructions of both the buyer and
seller to handle the paperwork at the settlement.
FHA
(FEDERAL HOUSING ADMINISTRATION) MORTGAGE - a loan insured by
the Federal Housing Administration. FHA mortgages require lower down
payments than conventional mortgages, and also feature less
stringent income and financial requirements.
FIXED-RATE
MORTGAGE - a mortgage with an interest rate that remains
constant for the life of the loan. The most common fixed-rate
mortgage is repaid over a period of 30 years; 15 year fixed-rate
mortgages are also available.
INDEX
- an economic indicator, usually a published interest rate, that
determines changes in the interest rate of an ARM. ARM rates are
adjusted to reflect changes in the index. The margin is the amount a
lender adds to the index to establish the actual interest rate on an
ARM.
INTEREST
- the sum paid for borrowing money, which pays the lender's costs of
doing business.
LENDER
BUY-DOWN MORTGAGE - a convertible mortgage offering a discounted
interest rate at the beginning of the loan that gradually increases
to an agreed-upon fixed-rate over the first few years of the loan.
It provides lower initial payments and a stable final monthly rate,
but the final rate may be somewhat higher than on a standard
fixed-rate mortgage.
LOAN
ORIGINATION FEE - the fee charged by a lender to prepare all the
documents associated with your mortgage.
LOAN-TO-VALUE
RATIO - the relationship between the amount of the mortgage loan
and the appraised value of the property expressed as a percentage.
MORTGAGE
INSURANCE - an insurance policy the borrower buys to protect the
lender from non-payment of the loan. Private mortgage insurance
policies are usually required if you make a down payment that is
below 20% of the appraised value of the home.
PITI
(PRINCIPAL, INTEREST, TAXES AND INSURANCE) - the four components
that (for most homeowners) are included in the monthly mortgage
payment. Principal and interest are the portions of the payment
assigned to repay the mortgage itself; taxes and insurance are paid
by your lender into a special escrow account to pay for homeowners
insurance and property taxes.
POINTS
(LOAN DISCOUNT POINTS) - prepaid interest on a mortgage that is
usually paid at the time of closing. Each point is equal to one
percent of the total amount of a mortgage (one point on an $80,000
mortgage is $800, or 1 percent of 80,000). Most lenders offer
mortgages with several combinations of points and interest rates;
generally, the lower the interest rate, the more points you will pay
at settlement.
PRINCIPAL
- the amount of debt, not including interest, left on a loan; also
the face amount of the mortgage.
TITLE
INSURANCE - an insurance policy which insures you against errors
in the title search, essentially guaranteeing you and your lender's
financial interest in the property.
UNDERWRITING
- the process of deciding whether to make a loan based on credit,
employment, assets and other factors.
VA
(DEPARTMENT OF VETERANS AFFAIRS) MORTGAGE - government insured
loans guaranteed by the Department of Veterans Affairs, requiring
very low or no down payments and with generous requirements for
qualification. They are available only to veterans of the armed
services, those currently on active duty or in the reserves, and
their spouses. |
