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| Adjustable Rate |
An interest rate that changes periodically in relation
to an index. Payments may increase or decrease accordingly. |
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| Amortization |
A repayment method in which the amount you borrow
is repaid gradually though 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. |
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| Annual Membership |
An amount 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."
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| Annual Percentage Rate (APR) |
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. Includes up-front costs
paid to obtain the loan, and is, therefore, usually a higher amount
than the interest rate stipulated in the mortgage note. Does not include
title insurance, appraisal, and credit report. |
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| Application |
An initial statement of personal and financial
information which is required to approve your loan. |
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| Application Fee |
Fees that are paid upon application. An
application fee may frequently include charges for property appraisal
($200-$400) and a credit report ($30-50). |
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| Appraisal |
A fee charged by an appraiser to render an opinion
of market value as of a specific date. Required by most lenders to
obtain a loan. |
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| 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. |
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| Balloon Payment |
A lump sum payment for the unpaid balance of the
loan. |
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| Cap |
The maximum allowable increase, for either payment
or interest rate, for a specified amount of time on an adjustable
rate mortgage. |
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| Cash Out |
Receiving money back when refinancing your present
mortgage. |
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| Ceiling |
The maximum allowable interest rate over the life
of the loan of an adjustable rate mortgage. |
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| 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's fees, title insurance, survey, and
any items which must be prepaid, such as taxes and insurance escrow
payments. |
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| Conforming Loan |
Generally, a mortgage loan under $203,150. Qualifying
ratios and underwriting methods are standardized to a large degree. |
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| Credit Limit |
The maximum amount that you can borrow under a
home equity plan. |
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| Debt Service |
The total amount of credit card, auto, mortgage
or other debt upon which you must pay. |
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| 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. |
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| Discount Points (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., two points on a $100,000 mortgage would equal
$2,000). More... |
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| Down Payment |
The difference between the purchase 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. |
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| 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. |
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| 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
stipulated in the mortgage note. Useful in comparing loan programs
with different rates and points. |
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| Encumbrance |
-A claim against a property by another party which
usually affects the ability to transfer ownership of the property |
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| Equity |
The difference between the fair market value (appraised
value) of your home and your outstanding mortgage balance. |
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| First Mortgage |
A mortgage which is in first lien position, taking
priority over all other liens (which are financial encumbrances). |
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| Fixed Rate |
An interest rate which is fixed for the term of
the loan. Payments as well are fixed at one amount. |
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| Good Faith Estimate |
A written estimate of closing costs which a lender
must provide you within three days of submitting an application. More... |
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| Grace Period |
A period of time during which a loan payment may
be paid after its due date but not incur a late penalty. Such late
payments may be reported on your credit report. |
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| Gross Income |
For qualifying purposes, the income of the borrower
before taxes or expenses are deducted. |
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| Home Equity Line of Credit |
A loan providing you with the ability to
borrow funds at the time and in the amount you choose, up to a maximum
credit limit for which you have qualified. Repayment is secured by
the equity in your 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. |
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| 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
freeing of equity for investment in other real estate or investment.
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 education loans. |
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| 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. |
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| HUD I Settlement Statement |
-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. More... |
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| Index |
A number, usually a percentage, upon which future
interest rates for adjustable rate mortgages are based. Common indexes
include the Cost of Funds for the Eleventh Federal District of banks
or the average rate of a one year Government Treasury Security. |
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| Interest Rate |
The periodic charge, expressed as a percentage,
for use of credit. |
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| Jumbo Loan |
Mortgage loans over $203,150. Terms and underwriting
requirements may vary from conforming loans |
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| 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, your loan to value ratio would be 80%. Loans with an LTV
over 80% may require Private Mortgage Insurance, defined below. |
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| Margin |
An amount, usually a percentage, which is added
to the index to determine the interest rate for adjustable rate mortgages. |
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Minimum Payment |
The minimum amount that you 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). |
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| Mortgage Banker |
Originates mortgage loans, loaning you their funds
and closing the loan in their name. |
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| Mortgage Broker |
As do mortgage bankers, takes loan application
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 and L's, banks, or investment
bankers |
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| Mortgage Insurance (MIP or PMI) |
Insurance purchased by the borrower to insure the
lender or the government against loss should you default. MIP, or
Mortgage Insurance Premium, is paid on government-insured loans (FHA
or VA loans) regardless of your LTV (loan-to-value). Should you pay
off a government-insured loan in advance of maturity, you 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 you have accumulated 20% of your home's value as equity,
your lender may waive PMI at your request. Please note that such insurance
does not constitute a form of life insurance which pays off the loan
in case of death. |
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| Mortgage Loan |
A loan which utilizes real estate as security or
collateral to provide for repayment should you default on the terms
of your loan. The mortgage or Deed of Trust is your agreement to pledge
your home or other real estate as security.More... |
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| Mortgagee |
The lender in a mortgage loan transaction. |
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| Mortgagor |
The borrower in a mortgage loan transaction. |
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| Negative Amortization |
Amortization in which the payment made is insufficient
to fund complete repayment of the loan at its termination. Usually
occurs when the increase in the monthly payment is limited by a ceiling.
The 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. |
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| PITI- |
Principal, interest, taxes and insurance, which
comprise your monthly mortgage payment |
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| 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., two points on a $100,000 mortgage would equal
$2,000).More... |
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| Prepayment Penalty |
--A fee paid to the lending institution for paying
a loan prior to the scheduled maturity date. |
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| Qualifying Ratios |
Comparisons of a borrower's debts and gross monthly
income |
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| Right to Rescission |
The legal right to void or cancel your mortgage
contract in such a way as to treat the contract as if it never existed.
Right of rescission is not applicable to mortgages made to purchase
a home, but may be applicable to other mortgages, such as home equity
loans. |
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| Security Interest |
An interest that a lender takes in the borrower's
property to assure repayment of a debt. |
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| Servicing a Loan |
The ongoing process of collecting your monthly
mortgage payment, including accounting for and payment of your yearly
tax and/or homeowners insurance bills |
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| Title |
The written evidence that proves the right of ownership
of a specific piece of property. |
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| Title Insurance |
Protection for lenders or homeowners against financial
loss resulting from legal defects in the title. |
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| Transaction Fee |
A fee which may be charged each time you draw on
a home equity credit line. |
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| Underwriting |
The process of verifying data and approving a loan |
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| Variable Rate |
An interest rate that changes periodically in relation
to an index. Payments may increase or decrease accordingly. |
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| VA Loan |
More appropriately termed "VA Insured Loan." A
loan for which the Veteran's Administration insures the lender against
losses the lender may incur due to your default. Available only to
veterans possessing a Certificate of Eligibility |
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