Glossary of Terms

A djustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically according to a preselected index. The various components may change separately. May be referred to as a variable rate mortgage or renegotiated rate mortgage:

Amortized Loan: A loan which is paid off in equal installments.

Annual Percentage Rate (APR): This is the cost of your credit expressed in terms of an annual rate. Since you may be paying "points" and other closing costs, the APR disclosed is often higher than the interest rate on your loan. The APR can be compared to the APR for other loans for which you may have applied to give you a fair method of comparison.

Assumable Mortgage: Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

Balloon Payment: The final payment of a mortgage loan when it is larger than the regular payment; it usually extinguishes the debt.

Buydown: Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

Cap: With an ARM, a limit on the amount either the interest rate or monthly payment may change.

Closing Costs: Expenses incurred in the closing of a real estate or mortgage transaction. Purchaser's expenses normally include cost of title examination, premiums for title policies, survey, attorney fee, lender's Service fees, and recording charges. In addition, the purchaser may have to place in escrow a sum of money to cover accrued real estate taxes, insurance, and PMI premiums.

Condominium: A system of individual ownership of units in a multi-family structure, combined with joint ownership of common area of structure and the land.

Contingency: The dependence upon a stated event which must occur before a contract is binding. For example, the sale of a house is contingent upon the buyer obtaining financing.

Conventional Mortgage: A loan neither insured by the FHA nor guaranteed by the VA.

Cooperative Ownership: Also called a stock cooperative or a co-op. A structure of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation which owns the building. Difficult to obtain financing because there is not individual ownership of each unit.

CRV (Certificate of Reasonable Value): A document (Appraisal) issued by the VA establishing their opinion of maximum value.

Deed of Trust: An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary), and reconveyed upon payment in full.

Due-On-Sale: A clause in a mortgage providing that if the mortgagor sells, transfers, or in any way encumbers the property, the lender has the right to demand the balance due on the mortgage.

Earnest Money: The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment.

Equity: The difference between the market value of property and the homeowner's indebtedness (mortgage),

Escrow/Impound: That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due, known as impounds in some states.

FHA (Federal Housing Administration): An agency of the federal government which insures private loans for financing of new and existing housing and for home repairs under government approved programs.

FHA "Free Rate": Allows that certain types of mortgage loans to be insured shall bear interest at a rate agreed upon between the borrower and the lender.

FHLMC (Freddie Mac): Federal Home Loan Mortgage Corporation, an affiliate of the Federal Home Loan Bank, which creates a secondary market in conventional residential loans in FHA and VA loans by purchasing mortgages from members of the Federal Reserve System and the Federal Home Loan Bank System.

FNMA (Fannie Mae): Federal National Mortgage Association, a federally sponsored private corporation which provides a secondary market for housing mortgages.

G.I Loan or VA Loan: A loan in which the Veteran's Administration guarantees the lender payment of a home mortgage by qualified veteran.

Graduated Payment Mortgage (GPM): A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. GPM's may be created by buy-downs, pledged accounts, or by the lender accepting negative amortization.

Graduated Payment Adjustable Rate Mortgage (GPARM): A type of flexible payment mortgage which combines features of both the GPM and the ARM. Usually involved ARM's with longer payment adjustment periods.

Index: An objective basis (i.e., the rate on 6-month Treasury bills) used to adjust a mortgage. The index is usually used to adjust the interest rate but may also be used to adjust the term of the mortgage or the amount of payment.

Lease Purchase Agreement: Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.

Loan Commitment: A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.

Loan To Value Ratio: The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value (selling price). On a $100,000 home, with a mortgage loan principal of $80,000, the loan to value ratio is 80%.

Mortgage/Deed of Trust: Pledge of real property to secure a debt by a written instrument given by the mortgagor. Should be recorded in the County Recorders Office.

Mortgage Discount "Points": Discounts (points) are a one-time charge assessed by a lending institution to increase the yield from the mortgage loan to a competitive position with the yield from other types of investments.

Mortgage Insurance Premium (MIP): The consideration paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance (PMI) company.

Mortgagee: The lender of money or the receiver of the mortgage.

Mortgagor: The borrower of money or the giver of the mortgage.

Note: A written promise to pay a certain amount of money.

Origination Fee: A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.

Point: One percent of the loan amount.

Prepayment Penalty: A fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.

Prepayment Privilege: The right given a purchaser to pay all or part of a debt prior to its maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.

Private Mortgage Insurance (PMI): Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

Second Mortgage/Second Trust: Junior Mortgage or Junior Lien; an additional loan imposed on property with a first mortgage. Generally at a higher interest rate and shorter terms than a "first" mortgage.

Title: Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property; the owners and others.

Title Insurance: An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.

Variable Rate: A mortgage loan interest rate that increases or decreases directly with fluctuations in an index beyond the control of the lender, such as the prime rate or bond market rate.

Veterans Administration Loans (VA): Housing loans to veterans by banks, savings and loans, or other lenders which are insured by the Veterans Administration, enabling veterans to buy a residence with little or no money down.