Below is a listing of common terms used when discussing mortgage loans.
Adjustable Rate Mortgage (ARM)
Mortgage in which the rate of interest is adjusted at regular intervals based on
a standard rate index. Most ARM’s have a cap on how much the rate may increase.
The process through which the mortgage debt is altered, usually declining, as payments
are made to the lender. “Negative-amortization” occurs when monthly payments are
too small to cover either the principal or interest reductions.
Annual Percentage Rate (APR)
The rate of interest to be paid on a loan projected life; sometimes referred to
as the “true” rate of interest.
A professional evaluation of the value of a home or other piece of property. It
is often required by the lender.
A real estate loan in which some portion of the debt will remain unpaid at the end
of the term of the loan. A balloon will usually result in a single large payment
due when the loan ends.
A limit on how much a mortgage interest rate may increase or decrease for an adjustable
A home loan that follows a fixed rate.
A ratio used by lending institutions to determine whether a person is qualified
for a mortgage. Debt-to-income is the total amount of debt, including credit cards
and other loans, divided by the total gross monthly income.
Failure to pay the mortgage payments over a specified period of time.
A percentage of the mortgage paid to the lender to lower the interest rate on a
loan. One point equals one percent of the mortgage.
The difference between the market value of a house and the amount still owed on
Money and documents deposited in a trust account to be held by one party for another.
Often used by brokers to hold deposit money prior to closing. Also used by lenders
to hold money for taxes and insurance on a home.
A loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines
Loan-To-Value Ratio (LTV)
The amount of the loan divided by the purchase price of the house. If a refinance,
the loan is divided by appraised value.
A set number of percentage points a lender adds to the index to determine the interest
rate for an ARM.
Mortgage Insurance (MI)
Insurance designed to cover the lender should the borrower default on the loan.
Depending on the lender, this may be required by the lender.
PITI stands for principal, interest, taxes and insurance - the components of the
monthly housing expense. Principal – the portion of the monthly payment that is
used to reduce the loan balance. Interest is the fee charged for borrowing money.
Taxes refer to the property taxes paid by the homeowner. Insurance refers to homeowner’s
insurance – insurance purchased by the borrower and required by the lender, to protect
the property against loss from fire and other hazards. Taxes and Insurance that
are included in the monthly mortgage payment are held in an Escrow account by the
lender who then pays the full amount when they come due.
An interest fee charged by the lender. One point is equal to one percent of the
mortgage. The use of points allow the borrower to buy up or down his permanent interest
A fee imposed on a borrower who pays off a mortgage before it is due.
A process by which a potential homebuyer qualifies for a home mortgage before making
an offer on a house. A lending institution agrees to make a loan in a specified
amount to the person it has pre-qualified.
The amount of the loan.
An additional mortgage on a property. It often carries a shorter term and a higher
interest rate than the original mortgage.
A company that searches for titles and insurance claims. Your loan will close at
a title company.
Truth In Lending Act
A federal law that requires lenders to reveal all the terms of the mortgage.
A loan guaranteed by the Veterans Administration. To obtain a VA loan, the borrower
must have served in the Armed Forces.
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U.S. Department of Housing and Urban Development (HUD)
Federal Trade Commission (FTC)
U.S. Department of Veteran Affairs (VA)
Federal Reserve Board (FRB) consumer information subsection
Making Homes Affordable
Foreclosures in your Area
America’s largest supplier of conventional home mortgage funds. Since its beginning
in 1968, Fannie Mae has helped more than 30 million families achieve the dream of
corporation chartered by Congress in 1970 to create a continuous flow of funds to
mortgage lenders. Since its inception, Freddie Mac has been involved in the financing
of one out of every six homes in America.
of Housing and Urban Development. HUD’s mission is to increase homeownership, support
community development and increase access to affordable housing free from discrimination.
The official homepage for the
Department of Veterans Affairs, providing benefits and other services to veterans,
their families and beneficiaries.
The United States Department of Agriculture supports
the growth of rural areas. 100% financing with no monthly mortgage insurance is
available in eligible areas.
Mortgage Bankers Assoc.
The preeminent association representing the real estate finance industry. National
organization providing news concerning the banking industry.
The National Association
of Mortgage Brokers
A national, non-profit organization dedicated to the
improvement of the mortgage broker industry.
National Association of Realtors
Help in finding a Realtor, home or Lender, with news for Realtors and the general
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