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While the information contained herein is intended to be useful and timely, it should in no way be viewed as a replacement for professional advice a consumer should seek. For the final word on mortgage products and lending practices, talk with our mortgage lender, a lawyer, or other mortgage finance professional.
MARGIN - the amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
MARKET VALUE - the highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
MORTGAGE INSURANCE - money paid to insure the mortgage when the downpayment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
MORTGAGEE - the lender.
MORTGAGOR - the borrower or homeowner.
NEGATIVE AMORTIZATION - occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.
NET EFFECTIVE INCOME - the borrower's gross income minus federal income tax.
NONASSUMPIION CLAUSE - a statement in a mortgage contract forbidding the assumption of the mortgage with out the prior approval of the lender.
ORIGINATION FEE - the fee charged by the lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
PITI - principal, interest, taxes and insurance. Also called monthly housing expense.
POINTS (LOAN DISCOUNT POINTS) - prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
POWER OF ATTORNEY - a legal document authorizing one person to act on behalf of another.
PREPAIDS - expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
PREPAYMENT - a privilege in a mortgage permitting the borrower to make payments in advance of their due date.
PREPAYMENT PENALTY - money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
PRINCIPAL - the amount of debt, not counting interest, left on a loan.
PRIVATE MORTGAGE INSURANCE (PMI) - in the event that you do not have a 20 percent downpayment, lenders will allow a smaller downpayment - as low as 5 percent in some cases. With the smaller downpayment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent downpayment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.
REALTOR - a real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
RECISION - the cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
RECORDING FEES - money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
RENEGOTIABLE RATE MORTGAGE (RRM) - a loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
RESPA - short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish the information after application only.
REVERSE ANNUlTY MORTGAGE (RAM) - a form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.
SERVICING - all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
SETTLEMENT/SETTLEMENT COSTS - see closing/closing costs.
SHARED APPRECIATION MORTGAGE (SAM) - a mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the properly. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.
SURVEY - a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
TERM MORTGAGE - see balloon payment mortgage.
TITLE - a document that gives evidence of an individual's ownership of property.
TITLE INSURANCE - a policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually based on the value of the property, and is often borne by the purchaser and/or seller.
TITLE SEARCH - an examination of municipal records to determine the legal ownership of property which is usually performed by a title company.
TRUTH-IN-LENDING - a federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.
TWO-STEP MORTGAGE - a mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier mortgage. "
UNDERWRlTING - the decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA LOAN - a long-term, low- or no downpayment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA MORTGAGE FlNDING FEE - a premium of up to 1 7/8 percent (depending on the size of the downpayment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no downpayment, this would amount to $1,406 either paid at closing or added to the amount financed.
VARIABLE RATE MORTGAGE (VRM) - see adjustable rate mortgage.
VERIFICATION OF DEPOSIT (VOD) - a document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
VERIFICATION OF EMPLOYMENT (VOE) - a document signed by the borrower's employer verifying his/her position and salary.
WRAPAROUND - results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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MORTGAGE LOANS
