Mortgage Terminology
A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z
- 7/23 and 5/25 Mortgages
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Mortgages with a one time rate adjustment after seven years and five years
respectively.
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- 3/1, 5/1, 7/1 and 10/1 ARMs
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Adjustable-rate mortgages in which rate is fixed for three-year, five-year,
seven-year and 10-year periods, respectively, but may adjust annually after
that.
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- Acceleration
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The right of the mortgagee (lender) to demand the immediate repayment of the
mortgage loan balance upon the default of the mortgagor (borrower), or by using
the right vested in the Due-on-Sale Clause.
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- Adjustable rate mortgage (ARM)
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Is a mortgage in which the interest rate is adjusted periodically based on a
pre-selected index. Also sometimes known as the renegotiable rate mortgage, the
variable rate mortgage or the Canadian rollover mortgage.
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- Adjusted Basis
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The cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
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- Adjustment Date
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The date that the interest rate changes on an adjustable-rate mortgage (ARM).
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- Adjustment interval
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On an adjustable rate mortgage, the time between changes in the interest rate
and/or monthly payment, typically one, three or five years depending on the
index.
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- Adjustment Period
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The period elapsing between adjustment dates for an adjustable-rate mortgage
(ARM).
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- Affordability Analysis
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An analysis of a buyers ability to afford the purchase of a home. Reviews
income, liabilities, and available funds, and considers the type of mortgage
you plan to use, the area where you want to purchase a home, and the closing
costs that are likely.
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- Amortization
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Means loan payment by equal periodic payment calculated to pay off the debt at
the end of a fixed period, including accrued interest on the outstanding
balance.
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- Amortization Term
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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.
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- Annual percentage rate (A.P.R.)
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APR is a measurement of the full cost of a loan including interest and loan
fees expressed as a yearly percentage rate. Because all lenders apply the same
rules in calculating the annual percentage rate, it provides consumers with a
good basis for comparing the cost of loans.
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- Appraisal
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An estimate of the value of property, made by a qualified professional called
an "appraiser".
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- Appraised Value
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An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
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- Assessment
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A local tax levied against a property for a specific purpose, such as a sewer
or street lights.
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- Assignment
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The transfer of a mortgage from one person to another.
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- Assumability
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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.
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- Assumption
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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 cost and new, probably higher, market-rate interest charges will
apply.
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- Assumption Fee
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The fee paid to a lender (usually by the purchaser of real property) when an
assumption takes place.
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- Balloon Mortgage
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A loan which is amortized for a longer period than the term of the loan.
Usually this refers to a thirty-year amortization and a five year term. At the
end of the term of the loan, the remaining outstanding principal on the loan is
due. This final payment is known as a balloon payment.
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- Balloon Payment
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The final lump sum paid at the maturity date of a balloon mortgage.
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- Biweekly Payment Mortgage
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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.
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- Blanket Mortgage
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A mortgage covering at least two pieces of real estate as security for the same
mortgage.
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- Borrower (Mortgagor)
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One who applies for and receives a loan in the form of a mortgage with the
intention of repaying the loan in full.
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- Bridge Loan
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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."
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- Broker
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An individual in the business of assisting in arranging funding or negotiating
contracts for a client but who does not loan the money himself. Brokers usually
charge a fee or receive a commission for their services.
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- Buy-down
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When the lender and/or the home builder subsidized the mortgage by lowering the
interest rate during the first few years of the loan. While the payments are
initially low, they will increase when the subsidy expires.
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- Cash Flow
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The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, maintenance,
utilities, etc.).
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- Caps (interest)
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Consumer safeguards which limit the amount the interest rate on an adjustable
rate mortgage which may change per year and/or the life of the loan.
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- Caps (payment)
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Consumer safeguards which limit the amount monthly payments on an adjustable
rate mortgage may change.
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- Certificate of Eligibility
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The document given to qualified veterans which entitles them to VA guaranteed
loans for homes, business and mobile homes. Certificates of eligibility may be
obtained by sending form DD-214 (Separation Paper) to the local VA office with
VA form 1880 (request for Certificate of Eligibility)
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- Certificate of Reasonable Value (CRV)
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An appraisal issued by the Veterans Administration showing the property's
current market value
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- Certificate of veteran status
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The document given to veterans or reservists who have served 90 days of
continuous active duty (including training time) It may be obtained by sending
DD 214 to the local VA office with form 26-8261a (request for certificate of
veteran status. This document enables veterans to obtain lower down payments on
certain FHA insured loans).
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- Change Frequency
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The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
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- Closing
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The meeting between the buyer, seller and lender or their agents where the
property and funds legally change hands, also called 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
percent to 6 percent of the mortgage amount.
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- Closing Costs
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These are expenses - over and above the price of the property- that are
incurred by buyers and sellers when transferring ownership of a property.
Closing costs normally include an origination fee, property taxes, charges for
title insurance and escrow costs, appraisal fees, etc. Closing costs will vary
according to the area country and the lenders used.
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- COFI
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Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index,
often the 11th District Cost of Funds.
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- Construction loan
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A short term interim loan to pay for the construction of buildings or homes.
These are usually designed to provide periodic disbursements to the builder as
he or she progresses.
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- Consumer Reporting Agency (or Bureau)
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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.
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- Contract sale or deed:
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A contract between purchaser and a seller of real estate to convey title after
certain conditions have been met. It is a form of installment sale.
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- Conventional loan
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A mortgage not insured by FHA or guaranteed by the VA.
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- Conversion Clause
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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.
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- Credit Report
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A report documenting the credit history and current status of a borrower's
credit standing.
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- Credit Risk Score
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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.
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- Debt-to-Income Ratio
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The ratio, expressed as a percentage, which results when a borrower's monthly
payment obligation on long-term debts is divided by his or her gross monthly
income. See housing expenses-to-income ratio.
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- Deed of trust
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In many states, this document is used in place of a mortgage to secure the
payment of a note.
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- Default
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Failure to meet legal obligations in a contract, specifically, failure to make
the monthly payments on a mortgage.
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- Deferred interest
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When a mortgage is written with a monthly payment that is less than required to
satisfy the note rate, the unpaid interest is deferred by adding it to the loan
balance. See negative amortization.
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- Delinquency
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Failure to make payments on time. This can lead to foreclosure.
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- Department of Veterans Affairs (VA)
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An independent agency of the federal government which guarantees long-term,
low-or no-down payment mortgages to eligible veterans.
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- Discount Point
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see point
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- Down Payment
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Money paid to make up the difference between the purchase price and the
mortgage amount.
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- Due-on-Sale-Clause
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A provision in a mortgage or deed of trust that allows the lender to demand
immediate payment of the balance of the mortgage if the mortgage holder sells
the home.
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- Earnest Money
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Money given by a buyer to a seller as part of the purchase price to bind a
transaction or assure payment.
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- Entitlement
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The VA home loan benefit is called an entitlement (i.e. entitlement for a VA
guaranteed home loan). This is also known as eligibility.
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- Equal Credit Opportunity Act (ECOA)
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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.
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- Equity
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The difference between the fair market value and current indebtedness, also
referred to as the owner's interest. The value an owner has in real estate over
and above the obligation against the property.
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- Escrow
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An account held by the lender into which the home buyer pays money for tax or
insurance payments. Also earnest deposits held pending loan closing.
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- Escrow Disbursements
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The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due.
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- Escrow Payment
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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.
- Fannie Mae
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see Federal National Mortgage Association.
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- Farmers Home Administration (FmHA)
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Provides financing to farmers and other qualified borrowers who are unable to
obtain loans elsewhere.
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- Federal Home Loan Bank Board (FHLBB)
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The former name for the regulatory and supervisory agency for federally
chartered savings institutions. Agency is now called the Office of Thrift
Supervision
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- Federal Home Loan Mortgage Corporation(FHLMC) also called
"Freddie Mac"
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Is a quasi-governmental agency that purchases conventional mortgage from
insured depository institutions and HUD-approved mortgage bankers.
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- Federal Housing Administration (FHA)
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A division of the Department of Housing and Urban Development. Its main
activity is the insuring of residential mortgage loans made by private lenders.
FHA also sets standards for underwriting mortgages.
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- Federal National Mortgage Association (FNMA) also know as
"Fannie Mae"
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A tax-paying corporation created by Congress that purchases and sells
conventional residential mortgages as well as those insured by FHA or
guaranteed by VA. This institution, which provides funds for one in seven
mortgages, makes mortgage money more available and more affordable.
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- FHA loan
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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 moderately-priced homes almost
anywhere in the country.
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- FHA mortgage insurance
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Requires a fee (up to 2.25 percent of the loan amount) paid at closing to
insure the loan with FHA. In addition, FHA mortgage insurance requires an
annual fee of up to 0.5 percent of the current loan amount, paid in monthly
installments. The lower the down payment, the more years the fee must be paid.
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- FHLMC
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The Federal Home Loan Mortgage Corporation provides a secondary market for
savings and loans by purchasing their conventional loans. Also known as
"Freddie Mac."
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- Firm Commitment
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A promise by FHA to insure a mortgage loan for a specified property and
borrower. A promise from a lender to make a mortgage loan.
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- First Mortgage
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The primary lien against a property.">
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- Fixed Installment
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The monthly payment due on a mortgage loan including payment of both principal
and interest.
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- Fixed Rate Mortgage
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The mortgage interest rate will remain the same on these mortgages throughout
the term of the mortgage for the original borrower.
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- Fully Amortized ARM
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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.
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- FNMA
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The Federal National Mortgage Association is a secondary mortgage institution
which is the largest single holder of home mortgages in the United States. FNMA
buys VA, FHA, and conventional mortgages from primary lenders. Also known as
"Fannie Mae."
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- Foreclosure
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A legal process by which the lender or the seller forces a sale of a mortgaged
property because the borrower has not met the terms of the mortgage. Also known
as a repossession of property.
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- Freddie Mac
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see Federal Home Loan Mortgage Corporation
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- Ginnie Mae
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see Government National Mortgage Association.
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- Government National Mortgage Association (GNMA)
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Also known as "Ginnie Mae," provides sources of funds for residential
mortgages, insured or guaranteed by FHA or VA.
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- Graduated Payment Mortgage (GPM)
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A type of flexible-payment mortgage where the payments increase for a specified
period of time and then level off. This type of mortgage has negative
amortization built into it.
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- Growing-Equity Mortgage (GEM)
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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.
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- Guaranty
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A promise by one party to pay a debt or perform an obligation contracted by
another if the original party fails to pay or perform according to a contract.
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- Guarantee Mortgage
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A mortgage that is guaranteed by a third party.
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- Hazard Insurance
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A form of insurance in which the insurance company protects the insured from
specified losses, such as fire, windstorm and the like.
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- Housing Expenses-to-Income Ratio
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The ratio, expressed as a percentage, which results when a borrower's housing
expenses are divided by his/her gross monthly income. See debt-to-income ratio.
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- HUD-1 statement
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A document that provides an itemized listing of the funds that are payable at
closing. Items that appear on the statement include real estate commissions,
loan fees, points, and initial escrow amounts. Each item on the statement is
represented by a separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's net proceeds
and the buyer's net payment at closing.
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- Impound
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That portion of a borrower's monthly payments held by the lender or servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due. Also known as reserves.
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- Index
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A published interest rate against which lenders measure the difference between
the current interest rate on an adjustable rate mortgage and that earned by
other investments (such as one- three-, and five-year U.S. Treasury security
yields, the monthly average interest rate on loans closed by savings and loan
institutions, and the monthly average costs-of-funds incurred by savings and
loans), which is then used to adjust the interest rate on an adjustable
mortgage up or down.
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- Indexed rate
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The sum of the published index plus the margin. For example if the index were
9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders
charge less than the indexed rate the first year of an adjustable-rate
mortgage.
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- Initial Interest Rate
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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."
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- Installment
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The regular periodic payment that a borrower agrees to make to a lender.
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- Insured Mortgage
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A mortgage that is protected by the Federal Housing Administration (FHA) or by
private mortgage insurance (MI).
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- Interest
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The fee charged for borrowing money.
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- Interest Accrual Rate
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The percentage rate at which interest accrues on the mortgage. In most cases,
it is also the rate used to calculate the monthly payments.
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- Interest Rate Buydown Plan
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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.
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- Interest Rate Ceiling
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For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note.
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- Interest Rate Floor
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For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note.
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- Interim Financing
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A construction loan made during completion of a building or a project. A
permanent loan usually replaces this loan after completion.
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- Investor
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A money source for a lender.
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- Jumbo Loan
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A loan which is larger (more than $359,650 as of 1/1/05) 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.
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- Late Charge
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The penalty a borrower must pay when a payment is made a stated number of days
(usually 15) after the due date.
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- Lease-Purchase Mortgage Loan
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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
down payment.
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- Liabilities
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A person's financial obligations. Liabilities include long-term and short-term
debt.
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- Lien
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A claim upon a piece of property for the payment or satisfaction of a debt or
obligation.
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- Lifetime Payment Cap
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For an adjustable-rate mortgage (ARM), a limit on the amount that payments can
increase or decrease over the life of the mortgage.
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- Lifetime Rate Cap
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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.
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- Loan
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A sum of borrowed money (principal) that is generally repaid with interest.
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- Loan-to-Value Ratio
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The relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage.
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- Lock
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Lender's guarantee that the mortgage rate quoted will be good for a specific
number of days from day of application.
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- Margin
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