Definition of Mortgage Terms

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AMORTIZATION
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.

AMORTIZED LOAN
A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

AMOUNT FINANCED
The amount borrowed less the prepaid finance charges. Prepaid finance charges can be found on the Good Faith Settlement Statement (HUD1 or HUD1A). For example, if the borrower’s note is for $100,000.00 and the prepaid finance charge total is $5,000.00, the amount financed would be $95,000.00. The amount financed is the amount on which the Annual Percentage Rate (APR) is calculated.

ANNUAL PERCENTAGE RATE (A.P.R.)
This APR is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs, such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. If you are comparing two loans with the same interest rate, the loan with the lower APR has less Prepaid Finance Charge.

APPRAISAL
An estimate of the value of property, made by a qualified professional appraiser.

ASSESSED VALUE
The determination, for tax purposes, of how much a home and the property that it occupies is worth.

ATTORNEY IN FACT
A type of agency relationship where one person holds a POWER OF ATTORNEY allowing him/her to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

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CLOSING COSTS
The fees and charges a buyer and seller must pay at the time of closing on a home sale. These can include, among other things, broker commission, lending discount points, insurance premiums, and attorney’s fees.

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 to 6 percent of the mortgage amount.

CONSTRUCTION LOAN
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 progresses. These are generally done by lenders with offices local to the site of the construction.

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.

EARNEST MONEY
Money given by a buyer to a seller as part of the purchase price to bind a transaction of assure payment. A good faith deposit.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)
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
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. When you first buy a home, your ownership equals your down payment; your mortgage lender owns the rest. To figure out your equity, subtract the amount you owe on your loan from your home’s current market value.

ESCROW PAYMENT
The portion of a mortgagor’s monthly payments held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some states.

FLOOD INSURANCE
An insurance policy that covers damage your home may receive due to flooding. If the home you are buying is in an area prone to flooding, then you may be required by your home loan provider to get flood insurance. To establish whether or not your home is in such an area, a land survey must be done at least fifteen days before the date you close on the home purchase.

GIFT LETTER
A form stating that a relative is giving you money to help you buy a home, and that they will not ask you to pay it back. The letter also provides proof, by referring to bank statements and other records, that the relative does, in fact, have enough money to cover the amount of the gift, and that the money has been transferred to your possession.

HAZARD INSURANCE
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

HOME EQUITY LOAN
A loan that lets you borrow back money against the difference of what you own on your current home loan and the home’s estimated sales price. People generally use home equity loans to get cash for large expenses like education, home improvement, or health care.

HOUSING EXPENSES-TO-INCOME RATIO
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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JOINT TENANTS
Two or more persons who own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent’s will. Creditors may sue to have the property divided to settle claims against on of the owners. Compare Tenants in Common, Tenants by the Entirety.

LOAN-TO-VALUE RATIO (LTV)
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

MORTGAGE INSURANCE
Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance.

MORTGAGE
A voluntary lien filed against property to secure a debt, usually a loan. It states that if you do not make your payments on the loan in a timely fashion, you may lose your rights to ownership of the home. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure.

MORTGAGEE
The lender.

MORTGAGOR
The borrower or homeowner.

NOTE
A written promise to pay a certain sum of money at a certain time.

PER DIEM INTEREST
Interest charges that cover the period of time – usually a matter of days, or a few weeks – between when you close on your home, and the first day of the first month of your regular loan payments.

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

PMI (PRIVATE MORTGAGE INSURANCE)
Private Mortgage Insurance is a type of financial guarantee that helps protect your credit union against the costs of foreclosure. With Private Mortgage Insurance, your credit union can accept a lower down payment than would normally be allowed. Most mortgage lenders require Private Mortgage Insurance when the transaction involves a down payment of less than twenty percent.

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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 $2,000.00).

PREPAID FINANCE CHARGE
Certain charges made in connection with the loan and which must be paid upon closing. The charges are defined by the Federal Reserve Board in Regulation Z and the charges must be paid by the borrower. Examples include loan origination fees, points, PMI, and tax service fees. Prepaid finance charges are totaled and then subtracted from the loan amount. The net figure is the amount financed.

PURCHASE AGREEMENT
An unconditional sales contract that defines the terms and conditions under which real property is conveyed.

QUIT CLAIM DEED
A deed releasing whatever interest you may hold in a property but making no warranty whatsoever.

RATE LOCK
A way you can establish that the interest rate on your loan remains the same between the time of your application and when you qualify for the loan. When applying for a loan, you can lock the interest rate for a specific amount of time.

RECISION
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

RECORDING FEES
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

RESPA
Stands for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost after application and prior to or at a settlement. The law requires lenders to furnish the information after application only.

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SURVEY
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

TAX LIEN
A claim against property for the amount of its due and unpaid taxes.

TENANTS IN COMMON
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to partition the property. Compare Tenants by the Entirety, Joint Tenants.

TITLE INSURANCE
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests. Title insurance covers mistakes made during a title search as well as matters which could not be found or discovered in the public records such as missing heirs, mistakes, fraud and forgery.

TRUTH-N-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.

UNDERWRITING
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

UP-FRONT COSTS
The total amount of cash you need to pay when you buy a home, minus the amount of your loan. Up-front costs include your down payment, any closing fees you must pay, like broker’s commissions or insurance charges, and the discount points you can use to lower your overall interest rate.

WARRANTY DEED
A deed conveying the title to a property with a warranty of clean, clear marketable title.
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