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Definitions of Mortgage Terms::

Annual Percentage Rate (APR):
The 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 different loans.

Appraisal:
An estimate of the value of property made by a qualified professional called an "appraiser.”

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

Balloon Mortgage:
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 or seven 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.

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."

Cash Flow:
The amount of cash derived over a certain period of time from an income producing property. The cashflow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc...).

Caps (interest)
Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.

Caps (payment):
Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.

Closing:
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 is about 3 percent to 6 percent of the mortgage amount

Closing Costs:
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 lender sused

Contract Sale or Deed::
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.

Conventional Loan:
A mortgage not insured by FHA or guaranteed by VA

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-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 or her gross monthly income. See housing expenses-to-income ratio

Down Payment:
Money paid to make up the difference between the purchase price and the mortgage amount.

Equity:
The difference between the fair market value and current in debtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property

Escrow:
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.

Conditions:
Any conditions that must be met before you complete a hone purchase should be state in your purchase contract. For example, many buyers make their home purchase contingent upon obtaining a mortgage commitment from a lender. Before you sign a purchase contract, we can make sure it contains provisions allowing you to cancel the purchase and get your money back if your conditions are not met.

Fixed Rate Mortgage:
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

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.

Foreclosure:
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.

Index:
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.

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."

Interest:
The fee charged for borrowing money.

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.

Late Charge:
The penalty a borrower must pay when a payment is made a stated number of days after the due date.

Lien:
A claim upon a piece of property for the payment or satisfaction of a debt or obligation

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

Market Value:
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Monthly Fixed Installment:
The portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

Mortgage Insurance:
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance Negative Amortization When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.

One Year Adjustable Rate Mortgage:
Mortgage where the annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

Origination Fee:
The fee charged by a 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.

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.

Points (Loan Discount 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).

Prepayment::
A privilege in a mortgage permitting the borrower to make payments in advance of their due date Primary Mortgage Market Lenders, such as savings and loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as FNMA or GNMA, etc…

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

Qualifying Ratios:
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

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

Refinance:
Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.

Second Mortgage:
An account held by the lender into which the home buyer pays money for tax or insurance payments.
A mortgage made subsequent to another mortgage and subordinate to the first one.

Standard Payment Calculation:
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Title:
A document that gives evidence of an individual's ownership of property.

Title Search:
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth in Lending:
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

Wraparound Mortgage:
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate Somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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*The information contained in this website has been prepared by George Russo & Associates, P.C. for general informational purposes only and is not intended to be legal advice. © Copyright-2009- Web design & development by Web360 & Don Design Studio

Definitions of Mortgage Terms::

Appraisal: An estimate of the value of property made by a qualified professional called an "appraiser.”

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

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."

Cash Flow: The amount of cash derived over a certain period of time from an income producing property. The cashflow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc...).

Caps (interest) Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.

Caps (payment): Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.

Contract Sale or Deed:: 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.

Conventional Loan: A mortgage not insured by FHA or guaranteed by VA

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 or her gross monthly income. See housing expenses-to-income ratio

Down Payment: Money paid to make up the difference between the purchase price and the mortgage amount.

Equity: The difference between the fair market value and current in debtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property

Escrow: 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.

Fixed Rate Mortgage: The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

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.

Foreclosure: 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.

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."

Interest: The fee charged for borrowing money.

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.

Late Charge: The penalty a borrower must pay when a payment is made a stated number of days after the due date.

Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation

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

Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

One Year Adjustable Rate Mortgage: Mortgage where the annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

Origination Fee: The fee charged by a 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.

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.

Points (Loan Discount 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).

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

Qualifying Ratios: Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

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

Refinance: Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.

Second Mortgage: An account held by the lender into which the home buyer pays money for tax or insurance payments. A mortgage made subsequent to another mortgage and subordinate to the first one.

Standard Payment Calculation: The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Title: A document that gives evidence of an individual's ownership of property.

Title Search: An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth in Lending: A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.