Home Page

Make Appointment

Mobile Notary Services

Pricing

Information

Links

Glossary of Terms

Mortgage Glossary

2/1 buy Down Mortgage

The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term.
 

Borrowers often refinance at the end of the second year to obtain the best long term rates, however even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.

Abstract, or Abstract of Title
A historical summary of all the recorded instruments and proceedings that affect the title of a property.

Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs

Acknowledgment
Declaration by a party executing an instrument that it is his act and deed. It is usually made before a Notary Public or Attorney.

Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Affiliated Business Arrangement Disclosure
This disclosure is provided to a borrower because they may have inquired about a lender-affiliated mortgage or escrow company. The lender also provides this disclosure to a borrower because they are required to disclose any affiliations they have with other companies. (i.e.: Title Companies, Finance Companies, and Escrow Companies) The lender is stating that any referrals that they may have given were only suggestions and that the borrower was free to choose any company that he / she desired. If the borrower did not choose one way or another, a lender usually chooses for him/her in order to process the loan.

Amortization
A repayment method in which the amount a borrower borrows is repaid gradually through regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Amount Financed
The Amount Financed is the loan amount applied for less the prepaid finance charges. Prepaid finance charges can be found on the Good Faith Estimate / Settlement Statement (HUD-I or IA). For example if the borrower's note is for $100,000 and the Prepaid Finance Charges total $5,000, the Amount Financed would be $95,000. The Amount Financed is the figure on which the Annual Percentage Rate is based. The Amount Financed is simply the loan Principal less the total of Prepaid Finance Charges.

Annual Membership
Amounts that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Annual Percentage Rate
1. The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth In Lending Act, Regulation Z. APR includes up-front costs paid to obtain the loan, and therefore, is usually a higher amount than the interest rate stipulated in the mortgage note. APR does not include title insurance, appraisal, and credit report. 2. It also is not the note rate for which the borrower applied. The APR is the cost of the loan in percentage terms taking into account various loan charges of which interest is only one such charge. Other charges which are used in calculation of the APR are Private Mortgage Insurance or FHA Mortgage Insurance Premium (when applicable) and Prepaid Finance Charges (loan discount, origination fees, prepaid interest and other credit costs). The APR is calculated by spreading these charges over the life of the loan that results in a rate higher than the interest rate shown on the Mortgage/Deed of Trust Note. If interest were the only Finance Charge, then the interest rate and the APR would be the same. 3. Interest + Prepaid Finance Charge = Finance Charge. = APR and / or Amount of Loan; Prepaid Finance Charge = Amount Financed = APR. 4. The APR is the relative cost of credit expressed in percentage terms. Remember the monthly payment is NOT bases on the APR. It is based on the interest rate stated on the NOTE and quoted at the time the borrower was contacted with the approval. The APR can be any of the following plus interest rate, amortized over the first year: loan fees, points, title fees, recording fees, signing fees, document fees, and any other fees imposed by the lender and paid by the borrower.

Application
This is an initial statement of personal and financial information, which is required to approve the loan.

Application Fee
A fee that is paid upon application for loan. An application fee may frequently include charges for property appraisal ($200 - $400) and a credit report ($30 - $100).

Appraisal
A fee charged by an appraiser to render an opinion of marker value as of a specific date. Required by most lenders to obtain a loan.

Appraised Value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. 

Asset

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.). 

Assignment

The transfer of a mortgage from one person to another. 

Assumability

An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer. 

Assumption Fee

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place. 

Assumption of Mortgage
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment
A lump sum payment for the unpaid balance of a loan. Usually comes at the end of a loan.

Before-tax Income

Income before taxes are deducted. 

Biweekly Payment Mortgage

A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest. 

Bridge Loan

A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage.Buydowns can occur in both fixed and adjustable rate mortgages.

Cap
The maximum allowable increase for either payment or interest rate for a specified amount of time on an adjustable rate mortgage.

Cash Out
Receiving money back when refinancing your present mortgage.

Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Close Application (Payoff Letter)
A document that authorizes lenders to payoff old loans with the funds from a new loan (refinance).

Closing
A meeting at which all documents are signed and all expenses are paid to transfer ownership of property. Also called a "settlement."

Closing Costs
Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments. a. closing costs, nonrecurring: one-time costs charged in conjunction with a loan. (i.e.: loan origination fee, title policy, escrow fee, credit report, appraisal, tax service, notary fees, recording fees, pest control inspection) b. closing costs, recurring: costs charged in conjunction with a loan (i.e.: tax reserve, tax prioritization, hazard insurance reserve, hazard insurance premium, prepaid interest)

Closing Instructions
A document that outlines the entire loan package. This includes the terms of the loan, fees (that are also shown in the HUD-1), and tells what documents will be included in the loan package.

Compound Interest

Interest paid on the original principal balance and on the accrued and unpaid interest.
 

Consumer Reporting Agency (or Bureau)

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources. 

Conversion Clause

A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Credit Limit
The maximum amount that a person can borrow under a home equity plan.

Credit Report

A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness. 

Credit Risk Score

A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

Debt Service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Deed
Is a legal instrument used to grant a right. It refers to a document used to transfer ownership of a property to another person. It provides the names of the old and new owners along with a legal description of the property being conveyed.

There are various types of deeds required for different purposes in different states. A general idea about each type of deed is given below.

• Quit Claim Deed:
  A document used to transfer any or all legal rights that the grantor has in the property. But the deed provides no warranty regarding the extent of the grantor's interest in the property.  
  
  Commonly used in the following situations.
  
• In a divorce, married couple can transfer ownership of the property to one spouse.
  
• A spouse may add or remove the other spouse's name to/from the property title after marriage.
  
• While a property is purchased, at closing the interest is transferred from the seller to the buyer through this deed.
  
• If a property is sold off to the new owner and the title shows the old owner as having certain rights, the previous owner should sign a quit claim and transfer all his rights to the new owner.
  
• A person planning for an estate or a living trust uses the deed to transfer ownership of the property into a trust.
  
• Reverse quit claim
  
  Once you have signed a quit claim, it becomes very difficult to reverse or undo the deed unless the grantee agrees to quit claim the property back to you. In case the grantee refuses to sign, you will have to prove that the transfer of property is invalid. For instance, you can prove that you signed the deed under threats, external pressure or may be the grantee made you sign by telling lies. In order to show the transfer is invalid, you can take help from a lawyer.
  
• Warranty Deed:
  Through this deed, the grantor transfers all his rights on property to the grantee. Either it warranties clear title (title free of any lien or defects) to the property or whatever is stated on the deed.
  
  Features Of Warranty Deed:
  
  • Conveyor of grantor interests - It is a deed, which conveys all the grantor's interests in the property.
  • Useful Document - It is a useful document that officially transfers ownership from the seller to the buyer
  • Warrant instrument - It is an excellent warrant instrument that warrants
    the property title - if the property title is defective or has a cloud such as mortgage claims, tax liens, title claims, etc against it.
  • Ownership Specifier - It also acts as a specifier, which shows how the owner has taken title to the property.
    
  The transfer of title through warranty deed is valid only when you fill up a sample form and record it at the office of the County Recorder.
  
• Grant Deed:
  It helps to convey legal rights to the grantee. It provides the guarantee that the title has not been transferred to any other person except the grantee and that the title is free from any lien attached to the property.
  
• Fiduciary Deed:
  Using this deed, a fiduciary such as trustee, guardian or executor transfers property to the grantee. This legal document implies that the fiduciary has acted within the powers allotted to him.

Deed is necessary to effect the transfer of title/interest in a property. It acts as a proof of the grantee gaining access to the property rights. The type of deed chosen depends upon the circumstances under which the property is to be transferred.    

Deed of Trust
Used in many western states. The agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage and a three-party instrument between a borrower called the trustor; a lender called the beneficiary and a neutral third party called a trustee. The deed of trust is the instrument, which is recorded to give added assurance that the promissory note will be paid when due.

Deed, Grant
A form of old deed common in California which contains implied warranties to the effect that the grantor has not previously conveyed or encumbered the property.

Deed, Quit Claim
A deed, which conveys whatever present right, title, or interest, the grantor may have. Unlike a grant deed, it does not contain any warranties.

Default

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage. 

Delinquency

Failure to make mortgage payments on time.

Deposit

This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Discount Point (or Points)
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e.: one point on a $100,000 mortgage would equal $1000).

Down Payment
The difference between the purchasing price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Effective Gross Income

A borrowers normal annual income, including overtime that is regular or guaranteed.Salary is usually the principal source, but other income may qualify if it is significant and stable.

Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is therefore, usually a higher amount than the interest rate stipulates in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance
A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equity
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow Disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due. 

Escrow Payment

The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Escrow Transfer Request and Disclosure
A document requesting that the funds in an escrow for a borrowers old loan to be transferred to the escrow account of the new loan at the time the old loan is paid off.

Escrow Waiver Agreement
A document that allows the lender to waive its right to require the borrower to establish an escrow impound account to pay for such things as real estate taxes or hazard insurance premiums.

Fannie Mae
The Federal National Mortgage Association, a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. It adds liquidity to the mortgage market by investing in home loans throughout the country.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate
An interest rate which is fixed for the term of a loan. Payments as well are fixed at one amount.

FHA Loan
More appropriately termed FHA Insured Loan. A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to a borrower's default.

Finance Charge
The amount of interest prepaid finance charge and certain insurance premiums (if any) which the borrower will be expected to pay over the life of a loan. Or the finance charge is the total of payments less the amount financed.

Finance charge, prepaid
Prepaid finance charges are certain charges made in connection with the loan and which must be paid upon the close of the loan. The Federal Reserve Board in Regulation Z defines these charges and the borrower must pay the charges. Non-inclusive examples of such charges are, loan organization fee, points or discount, private mortgage insurance, or FHA mortgage insurance, or tax service fee. Some loan charges are specifically excluded from the prepaid finance charge such as appraisal fees and credit fees.

Fixed Installment

The monthly payment due on a mortgage loan including payment of both principal and interest. 

Fixed-Rate Mortgage (FRM)

A mortgage interest that are fixed throughout the entire term of the loan. 

Form W-9
The purpose of this form is to allow the person who is required to file an information return with the IRS to get a borrowers correct taxpayer identification number (TIN) to report such items as income paid to the borrower (cash back), real estate transactions, mortgage interest paid to the borrower, acquisition or abandonment of secured property, or cancellation of debt.

Form 4506
The purpose of this form is for the lender to get a tax return, verify that the borrower did or did not file a Federal tax return, W-2 information, or a copy of a tax form.

Freddie Mac
The Federal Home Loan Mortgage Corporation. A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

GNMA

A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Grace Period
A period of time during which a loan payment may be paid after its due date and not incur a late penalty. Such late payments may be reported on your credit report. 

Growing-Equity Mortgage (GEM)

A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage. 

Guarantee Mortgage

A mortgage that is guaranteed by a third party.

Hazard Insurance
A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc), for a premium.

Home Equity Line of Credit
A loan providing a borrower with the ability to borrow funds at the time and in the amount the borrower chooses, up to a maximum credit limit for which a borrower has qualified. Repayment is secured by the equity in the borrower's home. Simple interest (interest-only) payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or the freeing of equity for investment in other real estate or other investments. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and educational loans.

Housing Expense Ratio

The percentage of gross monthly income budgeted to pay housing expenses.

HUD
The Department of Housing and Urban Development was established by Congress in 1965 and is responsible for the implementation and administration of government housing and urban development programs. These programs include community planning and development, housing production and mortgage insurance (FHA), secondary mortgage market activities (GNMA) and equal opportunity in housing.

HUD-1 Settlement Statement
This document is generated at the close of escrow and details all costs and expenses that were received or paid during the loan. Contained in this are the settlement charges to the borrower, the amount of the loan to be paid off, the gross amount due from the borrower, the principal amount of the new loan, and any other deposits or fees. Can be a form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

HUD-1, Addendum
This is an additional page that may be attached, and verifies that the borrowers have read and understand the HUD-1.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)

A combination fixed rate and adjustable rate loan - also called 3/1,5/1,7/1 - can offer the best of both worlds. A lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.

Impound Account
An account maintained by institutional lenders in which the borrower pays his real property taxes and hazard insurance premiums to the lender in monthly payments along with the principal and interest.

Interest Rate
The periodic charge expressed as a percentage, for use of credit. Or the percentage of a sum of money charged for its use.

Index
A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include Cost of Funds for the Eleventh Federal District of banks or the average rate of one-year Government Treasury Security.

Indexes
ARMs come in many varieties, but they all work the same way. At the end of the fixed period, the interest rate is changed in accordance with the value of a specified economic indicator, called an index. While there are many indexes used to govern ARMs, the most prevalent types are:

           Treasury Constant Maturities (also called Treasury Securities, or TCM): the most common Index; used 
           one-year  ARMs and Hybrid ARMs

           Treasury Bills mostly used for three month and six month ARMs

           11th District Cost-of-Funds (also called COFI, pronounced 'coffee'): used mainly on one month and six  
           month ARMs

           London Interbank Offered Rate (LIBOR, pronounced 'lye-bore'): used mainly on one month and six month
           ARMs, some annual ARMs

Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser." 

Installment

The regular periodic payment that a borrower agrees to make to a lender. 

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). 

Interest

The fee charged for borrowing money. 

Interest Accrual Rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments. 

Interest Rate Buydown Plan

An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. 

Interest Rate Ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note. 

Interest Rate Floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note. 

Jumbo Loan
Mortgage loans over $203,150. Terms and underwriting requirements may vary from confirming loans. 

Late Charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date. 

Lease-Purchase Mortgage Loan

An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment. 

Liabilities

A person's financial obligations. Liabilities include long-term and short-term debt. 

LIBOR or the London Inter Bank Offering Rates
is simply an average of the interest rates on dollar deposits traded between the banks situated in London. In other words it is the rate of interest at which the banks borrow funds from other banks situated in the London money market.

It is an international index which generally follows the economic condition of the world. The advantage of LIBOR is that allows international investors to compare their cost of fund with their cost of lending.

This rate is close in comparison to 1 year CMT or Constant Maturity Treasuries and is much more sensitive to wide fluctuations in the economy than COFI. There are several different types of LIBOR rates which are used to a great extent as ARM indexes like 1 month, 3 month, and 6 month. Out of this 6 month LIBOR is the most common in use.

One of the benefits of LIBOR indexed ARMs is that it allows the borrowers with very high initial rates in comparison to other ARMs. As a result it has proved itself as a competitive rate in comparison to popular rates like COFI, 6-month treasury bills, and 6-month certificate of deposits. Besides this, with the LIBOR ARMs the borrowers are generally protected from wide interest rate fluctuation because of periodic and lifetime interest rate caps. In addition this rate do not suffer from negative amortization.

Lifetime Payment Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. 

Lifetime Rate Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

A sum of borrowed money (principal) that is generally repaid with interest

Loan to Value Ratio (LTV)
A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, a borrowers loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance (see Private Mortgage Insurance).

Lock (or Lock In)
A commitment a borrower obtains from a lender assuring the borrower that a particular interest rate or feature is locked in for a definite time period. Provides protection should interest rates rise between the time the borrower applies for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds the borrower has borrowed.

Margin
An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Maturity

The date on which the principal balance of a loan becomes due and payable

Minimum Payment
The minimum amount that a borrower must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Monthly Payment
The loan amount, called the Principal, the Number of Payments, and the Annual Interest Rate (Note Rate) are used together to determine the monthly payment. This is the amount shown on the Note. If the loan is fully amortized, as most loans are, then by making the monthly payment every month on time, the entire principal will be paid off by the time the last payment is due.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker
A person who originates mortgage loans, loaning a borrower the funds, and closing the loan in their name.

Mortgage Broker
A person who, as a mortgage banker, takes loan applications and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S & L, banks, or investment bankers.

Mortgage Insurance
Insurance purchased by a borrower to insure the lender or the government against loss should a loan become default. MIP: (or Mortgage Insurance Premium) is paid on government-insured loans (FHA or VA loans) regardless of a borrowers LTV (loan-to-value). Should a borrower pay off a government-insured loan in advance of maturity, the borrower may be entitled to a small refund of MIP. PMI: (or Private Mortgage Insurance) is paid on those loans which are not government-insured and whose LTV is greater than 80%. When a borrower has accumulated 20% of their home value as equity, the lender may waive PMI at the borrower request. Please note that such insurance does not constitute a form of life insurance, which pays off the loan in case of death.

Mortgage Insurance Premium (MIP)

The amount paid by a mortgagor for mortgage insurance. 

Mortgage Life Insurance

A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgage Loan
A loan, which utilizes real estate as security or collateral to provide for repayment, should a borrower default on the terms of the borrower loan. The mortgage or Deed of Trust is the borrower agreement to pledge their home or other real estate as security.

Mortgagee
The lender in a mortgage loan transaction.

Mortgagor
The borrower in a mortgage loan transaction.

Mortgagor's Affidavit
A document used by the Federal Housing Administration to insure a loan, or by the Veterans Administration to guarantee a loan, or by a Private Mortgage Insurance Company to insure a loan. This document also states whether or not a borrower intends to occupy the property as a primary residence. It also determines if a property is located in a Special Flood Hazard Area.

Negative Amortization
Amortization in which a payment made is insufficient to fund complete repayment of a loan at its termination. Usually occurs when an increase in the monthly payment is limited by a ceiling. That portion of the payment, which should be paid, is added to the remaining balance owed. The balance owed may increase, rather than decrease, over the life of the loan.

Net Worth

The value of all of a person's assets, including cash. 

Non Liquid Asset

An asset that cannot easily be converted into cash.

Note
A signed document acknowledging a debt and a promise to repay per the terms outlined. The Note could contain: address of the property in question, loan amount, lender, interest rate, date in which the first payment of the new loan is due, date of last payment, where to mail the payments, monthly payments, and percentage charged if paid late.

N.R.C.C.
Non-Recurring Closing Costs. On a HUD 1 or Estimated Closing Statement for a loan.

Overnight Fee Statement
This allows the lender to use an overnight express mail to payoff the previous mortgage.

Origination Fee

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing

A property purchase transaction in which the party selling the property provides all or part of the financing.

Payment Schedule
The dollar figures in the payment schedule represent principal, interest and mortgage insurance (if applicable) over the life of a loan. These figures will not reflect taxes and insurance escrows or any temporary buy down payments contributed by the seller.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Payoff Statement
This document tells borrowers how the amount of the payoff of an old loan was reached. Generally the total payoff amount on this statement will match the payoff amount listed one the HUD-1 statement. This statement may include, prepayment interest, optional insurance, fees required for payoff, funds to be credited, funds to be retained. 

Periodic Payment Cap

A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap

A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not. 

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

P.O.C.
Paid outside of closing. Typically on a HUD 1 or Estimated Closing Statement for a loan.

Points

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them. 

Prepaid Finance Charges
Certain loan charges such as loan origination fees (points), loan discount (discount points), buy-downs, and prepaid interest (odd day interest), processing fees, etc. are defined as prepaid finance charges. 

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due. 

Prime Rate

The interest rate that banks charge to their preferred customers.Changes in the prime rate influence changes in other rates, including mortgage interest rates. 

Principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
 

Principal Balance

The outstanding balance of principal on a mortgage not including interest or any other charges. 

Private Mortgage Insurance (PMI)

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Qualifying Ratios
Comparisons of a borrower debts and gross monthly income.

Quitclaim Deed
A deed that transfers, without warranty of ownership, whatever interest or title a grantor may have at the time the conveyance is made.

Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time. 

Real Estate Agent