| Adjustable
Rate
An
interest rate that changes periodically in relation to an index.
Payments may increase or decrease accordingly.
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Amortization
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.
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Annual
Membership
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."
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Annual
Percentage Rate (APR)
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.
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Application
An initial statement of personal and financial
information which is required to approve your loan.
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Application
Fee
Fees that are paid upon application. An application
fee may frequently include charges for property appraisal ($200-$400)
and a credit report ($30-50).
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Appraisal
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.
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Assumption
of Mortgage
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.
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Balloon
Payment
A lump sum payment for the unpaid balance of the
loan.
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Cap
The maximum allowable increase, for either payment
or interest rate, for a specified amount of time on an adjustable
rate mortgage.
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Cash
Out
Receiving money back when refinancing your present
mortgage.
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Ceiling
The maximum allowable interest rate over the life
of the loan of an adjustable rate mortgage.
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Closing
Costs
Any fees paid by the borrowers or sellers during
the closing of the mortgage loan. This normally includes an origination
fee, discount points, attorney's fees, title insurance, survey,
and any items which must be prepaid, such as taxes and insurance
escrow payments.
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Conforming
Loan
Generally, a mortgage loan under $203,150. Qualifying
ratios and underwriting methods are standardized to a large degree.
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Contract
of Sale
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.
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Credit
Limit
The maximum amount that you can borrow under a
home equity plan.
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Debt
Service
The total amount of credit card, auto, mortgage
or other debt upon which you must pay.
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Deed
of Trust
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.
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Discount
Points (or Points)
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).
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Down
Payment
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.
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Due
on Sale
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.
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Effective
Interest Rate
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.
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Encumbrance
A claim against a property by another party which
usually affects the ability to transfer ownership of the property.
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Equity
The difference between the fair market value (appraised
value) of your home and your outstanding mortgage balance.
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First
Mortgage
A mortgage which is in first lien position, taking
priority over all other liens (which are financial encumbrances).
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Fixed
Rate
An interest rate which is fixed for the term of
the loan. Payments as well are fixed at one amount.
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FHA
Loan
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.
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Good
Faith Estimate
A written estimate of closing costs which a lender
must provide you within three days of submitting an application.
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Grace
Period
A period of time during which a loan payment may
be paid after its due date but not incur a late penalty. Such late
payments may be reported on your credit report.
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Gross
Income
For qualifying purposes, the income of the borrower
before taxes or expenses are deducted.
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Home
Equity Line of Credit
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.
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Home
Equity Loan
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.
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Hazard
Insurance
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.
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HUD
I Settlement Statement
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.
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Index
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.
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Interest
Rate
The periodic charge, expressed as a percentage,
for use of credit.
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Jumbo
Loan
Mortgage loans over $203,150. Terms and underwriting
requirements may vary from conforming loans.
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Loan
to Value Ratio (LTV)
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 90%. Loans with an
LTV over 90% may require Private Mortgage Insurance, defined below.
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Lock
or Lock In
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.
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Margin
An amount, usually a percentage, which is added
to the index to determine the interest rate for adjustable rate
mortgages.
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Minimum
Payment
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).
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Mortgage
Banker
Originates mortgage loans, loaning you their funds
and closing the loan in their name.
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Mortgage
Broker
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.
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Mortgage
Insurance (MIP or PMI)
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 90%. 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.
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Mortgage
Loan
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.
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Mortgagee
The lender in a mortgage loan transaction.
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Mortgagor
The borrower in a mortgage loan transaction.
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Negative
Amortization
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.
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PITI
Principal, interest, taxes and insurance, which
comprise your monthly mortgage payment.
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Points
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).
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Prepayment
Penalty
A fee paid to the lending institution for paying
a loan prior to the scheduled maturity date.
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Qualifying
Ratios
Comparisons of a borrower's debts and gross monthly
income.
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Right
to Rescission
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.
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Security
Interest
An interest that a lender takes in the borrower's
property to assure repayment of a debt. See Mortgage and Deed of
Trust above.
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Servicing
a Loan
The ongoing process of collecting your monthly
mortgage payment, including accounting for and payment of your yearly
tax and/or homeowners insurance bills.
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Title
The written evidence that proves the right of ownership
of a specific piece of property.
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Title
Insurance
Protection for lenders or homeowners against financial
loss resulting from legal defects in the title.
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Transaction
Fee
A fee which may be charged each time you draw on
a home equity credit line.
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Underwriting
The process of verifying data and approving a loan.
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Variable
Rate
An interest rate that changes periodically in relation
to an index. Payments may increase or decrease accordingly.
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VA
Loan
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.
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