Mortgage Finance Glossary
Written by Yun Yang   


Access Period: The term, or amount of time, you have to use (or access) your approved home equity line of credit.

Adjustable-Rate Loans: Also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.

Amortization: Repayment of a loan with periodic payments of principal and interest. The payments are calculated so that the debt is paid off at the end of a fixed period.

Annual Membership or Maintenance Fee: An annual charge for access to a financial product such as a line of credit, credit card, or account. The fee is charged regardless of whether or not the product is used.

Annual Percentage Rate (APR): The cost of credit, expressed as a yearly rate. For closed-end credit, such as car loans or mortgages, the APR includes the interest rate, points, broker fees, and other credit charges that the borrower is required to pay. An APR, or an equivalent rate, is not used in leasing agreements.

Application Fee: Fees charged when you apply for a loan or other credit. These fees may include charges for property appraisal and a credit report.

Appraisal: A report prepared by a qualified real estate appraiser, which creates an estimate of the fair market value of a property.

Appraised Value: The appraised value of your home when you purchased it.

Break-Even Monthly Payment Savings: The number of months it will take for your monthly payment reduction to be greater than your closing costs.

Break-Even PMI & Interest Savings: The number of months it will take for your interest and PMI savings to exceed your and closing costs.

Break-Even Total Savings After Tax: The number of months it will take for your after-tax-interest and PMI savings to exceed your closing costs.

Break-Even Total Savings vs. Prepayment: This is the most conservative breakeven measure. It is the number of months it will take for your after-tax-interest and PMI savings to exceed both your closing costs and any interest savings from prepaying your mortgage. The prepayment amount used in this calculation is the amount that you would have to spend on closing costs.

Calculate Balance: To let the calculator determine your remaining balance, based on your original loan information and years remaining, check this box. To enter your own amount, leave this box unchecked.

Cap (Interest Rate): A limit on the amount that your interest rate can increase. Two types of interest-rate caps exist. Periodic adjustment caps limit the interest-rate increase from one adjustment period to the next. Lifetime caps limit the interest-rate increase over the life of the loan. By law, all adjustable-rate mortgages have an overall cap.

Closing: The final step in the home equity process after a line of credit or loan is approved. The closing is a meeting between all parties involved in the transaction during which required legal documents are signed.

Closing or Settlement Costs: Fees paid when you close (or settle) on a loan. These fees may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys' fees; recording fees; estimated costs of taxes and insurance; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs within three days of application. The good faith estimate lists each expected cost as an amount or a range.

Collateral: Property pledged as security for repayment of a loan.

Commitment Letter: Form letter from a lender stating willingness to advance funds to a named borrower, repayable at a specified rate and time period.

Credit Limit: The maximum amount that may be borrowed on a credit card or under a home equity line of credit plan.

Credit Score: A numerical rating provided on a credit report that establishes credit worthiness based upon a person's past credit/payment history and their current credit standing.

Current Appraised Value: The current appraised value of your home.

Current Payment: Your current payment is the sum of principal, interest and PMI. Because refinancing does not affect your insurance or taxes they are not included here.

Current Term in Years: Total length of your current mortgage in years.

Debt-to-Income Ratio: Relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.

Equity: The amount by which the value of the borrower's home exceeds the amount owed on the mortgage loan. If the borrower's home is worth $100,000 and the borrower owes $65,000 on the mortgage loan secured by the borrower's home, then the borrower's equity in that home is $35,000 or 35% equity in the home.

Escrow Account: An account established with a mortgage lender comprising of funds from a borrower used to pay taxes and insurance premiums when they become due.

Escrow: The holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Federal Home Loan Mortgage Corporation (Freddie Mac): This corporation is designed to promote the flow of capital into the housing market by establishing an active secondary market in mortgages.

Federal National Mortgage Association (Fannie Mae): has been described as "a private corporation with a public purpose", basically provides a secondary market for residential loans. Fannie Mae is authorized to buy Federal Housing Administration (FHA) insured mortgages, thereby replenishing the supply of lendable money.

Fixed-Rate Loans: They generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Good Faith Estimate: provided by a mortgage lender or broker in the United States to a customer. The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan. These fees (settlement cost/closing cost) covers all the expenses associated with a home loan, including inspections, title insurance, taxes, etc. The good faith estimate is only an estimate. The final closing costs may be different.

Government National Mortgage Association (Ginnie Mae): issuing guarantees of securities backed by government-insured or guaranteed mortgages.

Income Tax Rate: Your current income tax rate.

Index: The economic indicator used to calculate interest-rate adjustments for adjustable-rate mortgages or other adjustable-rate loans. The index rate can increase or decrease at any time. See chart Selected Index Rates for ARMs over an 11-year Period in the Consumer Handbook on Adjustable Rate Mortgages for examples of common indexes that have changed in the past.

Interest Rate: The percentage rate used to determine the cost of borrowing money, stated usually as a percentage of the principal loan amount and as an annual rate.

Lien: An encumbrance on property which act as security for the payment of a debt or the performance of an obligation. A mortgage is a lien. A lender will want most, if not all, liens on the property removed before making a mortgage loan.

Loan Balance: Balance of your mortgage that will be refinanced.

Loan Origination Fees: Fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.

Loan Origination Rate: This is the percentage of the new mortgage that is paid to the lender as the loan origination fee. Typically this fee is 1% of the loan balance.

Loan-to-Value Ratio: The mortgage amount divided by the lower of the purchase price or the appraised value of the property. This ratio is expressed as a percentage. A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Minimum Payment: The lowest amount that you must pay (usually monthly) to keep your account in good standing. Under some plans, the minimum payment may cover interest only; under others, it may include both principal and interest.

Monthly PI Payment: Monthly principal and interest payment.

Monthly PMI Payment: Monthly cost of Principal Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year. Monthly PMI is calculated by multiplying your starting loan balance by this percent and dividing by 12. When your loan balance exceeds 20% of the original purchase price, your PMI payment drops to zero.

Mortgage: A document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

New Interest Rate: The annual interest rate for the new loan.

New Payment: Your new payment is the sum of principal, interest and PMI.

New Term in Years: Number of years for your new loan.

Original Mortgage Amount: Original amount of your mortgage.

Other Closing Costs: Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other misc. fees paid.

Private Mortgage Insurance (PMI): A policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults. Most lenders require PMI for loans with loan-to-value (LTV) percentages in excess of 80%. This allows the borrower to make a smaller down payment of as low as 3%, instead of about 20%, and usually requires an initial premium payment and possibly an additional monthly fee depending on the loan's structure.

Points: Fee paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs.

Prime: The value of the index used for a line of credit.

Processing: The second step in the home equity application process which involves the verification of information stated on the application. Credit reports and the appraisal are also ordered at this time.

Property Insurance: Insurance taken on a property to protect the owner against property damage and other unforeseen occurrences. Lenders require property insurance for mortgages and home equity loans.

Recording Fees: The fee charged by the recorder's office to record a document such as a mortgage, deed of trust, deed and UCC Financing Statement.

Repayment Period: The term is the amount of time, you have to pay back any funds you have used (or accessed) from your home equity line of credit.

Security Interest: If stated in your credit agreement, a creditor's, lessor's, or assignee's legal right to your property (such as your home, stocks, or bonds) that secures payment of your obligation under the credit agreement.

Servicing: Activities the lender performs such as collecting the payments and/or paying taxes and insurance from an escrow account.

Stated Income: A type of mortgage or home equity loan where the borrower "states" his or her income but is not required to supply written proof of that income.

Title: Written evidence of the ownership of property, such as a property deed.

Title Fee: Title fee is paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.

Title Insurance Policy: In real estate, an insurance policy by which the insurer agrees to pay the insured (purchaser, mortgagee, etc.) a specific amount for any loss caused by defects of title to the subject property.

Title Search: A process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics' liens). It also discloses past and current facts about the subject property's ownership.

Transaction Fee: Fee charged each time a withdrawal or other specified transaction is made on a line of credit, such as a balance transfer fee or a cash advance fee.

Transaction, Settlement, or Closing Costs: They may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.

Truth-in-Lending Disclosure: Federal law requires that the lender must give this document to the homebuyer within three business days after loan application. This disclosure gives details of the mortgage payments along with the corresponding APR and finance changes.

Underwriter: a mortgage underwriter understands the mortgage loan qualification, approval, and pre-approval. He looks at the credit history, credit score, down payment, equity, income, and outstanding loan.

Underwriting: In mortgage and home equity lending, the decision-making process used to determine whether the loan risk is acceptable to the lender. Underwriting involves the satisfactory review of the property appraisal and examination of the borrower's ability and willingness to repay the debt.

Variable Rate: An interest rate that changes periodically in relation to an index, such as the prime rate. Payments may increase or decrease accordingly.

Years Remaining: Number of years remaining on your current mortgage.



 
Last Updated on Wednesday, 22 December 2010 05:41