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EQUAL HOUSING
OPPORTUNITY
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Glossary Of Some Common Terms Used By Mortgage Brokers, Lenders & R/E Agents
Amortization Schedule: The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and debt service (interest) fees.
Annual Percentage Rate (APR): The rate of annual interest charged on a loan.
Buy Down: Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.
Broker Premium: Also known as yield premium, yield spread, etc. The amount expressed as a percentage or in dollars that the lender will pay the broker for selling a higher interest rate. Normally is found with a "no point" or "no origination" loan. Must be disclosed on the Good Faith Estimate if the broker is not a correspondent of the lender. The Broker Premium is paid to ADL Mortgage by the Lender as compensation for selling the Lender’s rate and delivering the loan to the Lender within the 30-day lock period.
Cash-Out Refinance: Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.
Closing: A torturous process designed to induce cramping in a client's hands by requiring signature on countless pieces of documentation that nobody ever reads. Or, the process whereby the loan is consummated with the client completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the loan.
Community Property: In many jurisdictions, any property which has been acquired by a married couple. The ownership of the property is considered equal unless stipulated otherwise by both parties.
Debt Ratio (DR): Represents the ratio of all of your monthly debt payments to your stable monthly income.
Discount Points: Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.
Escrow Account: An account setup by a mortgage servicing company to hold funds with which to pay expenses such as homeowners insurance and property taxes. An extra amount is paid with regular principal and interest payments that goes into the escrow account each month.
Foreclosure: The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan.
Hazard Insurance: Insurance covering damage to a property caused by hazards such as fire, wind and accident.
Index: Lenders tie ARM or "adjustable" interest rate changes to changes in an "index". Common indexes are a 1 year treasury bill, cost of funds, 6-month LIBOR or cost of savings.
Joint Tenancy: A situation where two or more parties own a piece of property together. Each of the owners has an equal share, and may not dispose of or alter that share without the consent of the other owners.
Loan to Value (LTV): The ratio is the amount of the loan ($80,000 loan amount) divided by the value of the house ($100,000 appraised value or purchase price) equals the LTV of 80%.
Margin: The difference between the interest rate and the index on an adjustable rate mortgage.
Mortgage Broker: A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each client.
Mortgage Insurance: A policy that fulfills that obligations of a mortgage when the policy holder defaults or is no longer able to make payments.
Negative Amortization: When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Option ARM during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest.
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate: The interest rate stated on a mortgage note.
Paid Outside of Closing (POC): Some fees may be listed with (POC) or (paid) next to them, for items (appraisals, up-front fees, etc.) paid by you before the loan closes.
Planned Unit Development (PUD): A coordinated, real estate development where common areas are shared and maintained by an owner's association or other entity.
Pre-Approval: The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre-approval allows the borrower greater freedom in negotiations with sellers.
Prepayment Penalty: A penalty assessed to you for paying the loan off early or for paying more than 20% of the original principal amount in any 12 month period. The penalty time frame can be any where from 1 - 5 years. Some lenders will not invoke the penalty if you sell the house (this is called a soft prepay).
Prime Rate: The interest rate that banks and other lending institutions charge other banks or preferred customers.
Principal, Interest, Taxes, And Insurance (PITI): The most common constituents of a monthly mortgage payment.
Sales Comparison Approach: An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently
Tenancy In Common: A form of holding title, whereby there are two or more people on title to a property, ownership does not pass on to the others upon the death of one individual.
Title Company: An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act at the facilitator ensures all parties are paid during the real estate transaction.
Title Insurance: A policy which insures a property owner should a prior claim arise against the property
after the purchase has been completed. This also covers a lender should a question of ownership arise.
Truth In Lending: A federal law requiring full disclosure by lenders to borrowers of all terms, conditions and
costs of a mortgage.
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Residential & Commerical Mortgages
