Mortgage and Loan Glossary

My Mobile Notary – Mortgage Glossary

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These definitions are provided for general information and are in no way intended to replace professional legal advice or the assistance of your mortgage professional.

Acceleration Clause – allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.

Adjustable Rate Mortgage (ARM) – is a mortgage in which the interest rate is adjusted periodically based on a preselcted index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustment Interval – on an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three, or five years.

Amortization– means loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR) – an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. This APR allows the home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal – an estimate of the value of property, made by a qualified professional called an “appraiser”.

Assumption – the agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charges will apply.

Balloon (payment) Mortgage – usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Closing – the meeting between the buyer, seller, and lender or their agents where the property and funds legally change hands. Also called a settlement.

Closing Costs – usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 to 6% of the mortgage amount.

Construction Loan – a short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Conventional Loan – a mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FMHA).

Debt-To-Income Ratio – the ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

Deed of Trust – in many states, this document is used in place of a mortgage to secure the payment of a note.

Default – failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Discount Points – see “points”.

Equal Credit Opportunity Act (ECOA) – is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Escrow – refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or “closing”. Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.

FANNIE MAE – see Federal National Mortgage Association.

Federal Housing Administration (FHA) – division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loan made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA) – also known as “Fannie Mae”. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by the VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan – a loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

GINNIE MAE – see Government National Mortgage Association.

Government National Mortgage Association (GNMA) – also known as “Ginnie Mae”, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Gross Monthly Income – the total amount the borrower earns per month, before any expenses are deducted.

Hazard Insurance – a form of insurance that protects the insured from specified losses, such as fire, windstorm, and the like.

Impound – that portion of a borrower’s monthly payments held by the lender or servicer to pay for taxed, hazard insurance, mortgage insurance, lese payments, and other items as they become due. Also known as reserves.

Jumbo Loan – a loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Loan to Value Ratio – the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin – the amount a lender adds to the index on an adjustable mortgage to establish the adjusted interest rate.

Mortgage Insurance – money paid to insure the mortgage when the down payment is less than 20 percent.

Net Effective Income – the borrower’s gross income minus federal income tax.

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 – 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.

PUD – Planned Unit Development – it is the comprehensive development plan for a large area. Usually indicating where roads, schools, recreational, office, commercial or industrial and residential areas will be. OR the subdivision that has common areas reserved for the use of and commonly owned by the separate lot owners.

Quit Claim Deed – a legal document which transfers to the buyer or owner, whatever interests in the property are held by the maker of the deed. It does not guarantee that those interest are valid. By accepting such a deed, you accept the risk that someone may later appear with a valid claim to your property.

Rescission – 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 Fee – money paid to the lender for the recording of a home sale with local authorities, thereby making it part of the public records.

Settlement/Settlement Costs – see closing/ closing costs.

Title Insurance – a policy, usually issued by a title insurance company, which insures a home buyer against errors in the title serach. The cost of the policy is usually based on the value of the property, and is often borne by the seller and/or seller.

Truth In Lending – a federal law requiring disclosure of the Annual Percentage rate to home buyers shortly after they apply for the loan.

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