Mortgage Glossary


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

A

Analysis Statement

Every year an escrow analysis is performed to see whether there are any discrepancies in the account. The results are reported in your analysis statement.

Appraisal

Appraisal is the process of determining how much a home is worth-its market value. It also refers to the report establishing the value.

Appraised value

The appraised value is the home's current market price if you are purchasing or refinancing.

APR

Annual Percentage Rate (APR) is your loan's interest rate plus any other charges like pre-paid interest, closing costs and/or mortgage insurance premiums. APR gives you the "true cost" of your loan.

ARM

An Adjustable Rate Mortgage, or ARM, is a mortgage with an initial fixed rate period, generally 1, 3, 5, or 7 years, after which the rate adjusts for the remaining term of the loan. Rate adjustment is based on the market rate at that time, using an index and a margin.

C

Cash out

Cash out refinancing is simply borrowing money from the equity in your home based on its value. For example, if your home is valued at $100,000 and your current mortgage balance is $50,000, you may be able to take $20,000 cash out of the equity in your home when you refinance, resulting in a new mortgage balance of $70,000.

Closing Costs

Closing costs are the fees you pay at or before closing that are required to process, approve and close your loan. They include lender fees, attorney fees, appraisal fees, title fees, pre-paid taxes and other fees.

Conforming loan limit

The conforming loan limit is based on average home prices and the maximum loan amount Fannie Mae and Freddie Mac will purchase and/or guarantee. Currently the limit is $417,000 ($625,000 in Alaska and Hawaii). The conforming limit is set every year by the Office of Federal Housing Enterprise Oversight (OFHEO). Loans that exceed the conforming loan limit are called Jumbo loans.

Conventional

A conventional loan is any mortgage that is not guaranteed by any government agency, including the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Credit Line Agreement

The document you receive when you open a line of credit that explains the rater, terms and amount of credit.

D

Default

A homeowner who fails to make mortgage payments or meet other obligations under the mortgage is in default of the loan. Defaulting on your payments can cause you to lose your home. A homeowner at risk of default should contact the lender immediately to discuss options.

Discount points

Discount points, also called points, is money you pay up front to "buy down" (or lower) the interest rate on your home loan. One discount point will cost you 1% of the loan amount.

Divorce Decree

The legal document granting a termination of your marriage; signed and dated by a judge and court clerk.

E

Earnest money deposits

Earnest money deposits, also known as a Good Faith Deposit, is a down payment given to the seller by the buyer once the purchase agreement contract is signed that shows that the purchase offer is being made in good faith. If the buyer defaults on the purchase agreement, the seller usually keeps some or all of the deposit.

Equity

Equity is the difference between the appraised value of your home and the outstanding principal balance on your mortgage. The amount of equity you have in your home is an important factor lenders consider when you refinance your mortgage.

Escrow

Escrow is the payment made each month to the lender that is used to pay the taxes and insurance due on your home each year.

Your lender may require you or you may choose to set up an escrow account when you close your loan. If so, your lender will add payments for taxes and insurance to your monthly mortgage payment and hold these payments in the escrow account for you. When your taxes and insurance are due each year, your lender will pay them for you from your escrow account.

Escrow account

This account holds the taxes and insurance due on your home.

Your lender may require you or you may choose to set up an escrow account when you close your loan. If so, your lender will add payments for taxes and insurance to your monthly mortgage payment and hold these payments in the escrow account for you. When your taxes and insurance are due each year, your lender will pay them for you from your escrow account.

If you don't set up an escrow account, you will need to pay your property tax bill and your homeowner's insurance in full yourself every year.

F

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs) that have been given a federal charter to purchase mortgages from banks and lending institutions.

Financial Injury

Financial injury means monetary harm to borrowers directly caused by GMAC Mortgage's errors (including miscalculation of fees), misrepresentations or other deficiencies.

Fully Assessed

The full value of the property or market value must be assessed to determine the tax rate. If the property is not fully assessed, the tax rate may change once a full assessment is done.

I

Installment Loans

A loan that is repaid with a fixed number of periodic equal-sized payments.

Interest rate

A mortgage interest rate is the percentage of interest you pay a bank or financial company to have a home loan. Generally the lower the rate, the less you pay to the bank over time.

Interest rate cap

This is the highest interest rate allowed on your mortgage. Your actual interest rate will not be adjusted above this rate.

L

Loan amount

The amount of money you borrow to help finance a property.

If you are buying, subtract your down payment from the home's sale price to get your loan amount.

If you are refinancing, your loan amount will be the current balance on your mortgage plus any cash you want to take out (assuming there is sufficient equity in the property).

Loan balance

The remaining amount you owe, balance, on your mortgage.

Loan to value ratio

The loan to value ratio is the amount you are asking to borrow divided by the value of the home. For example: an 80% loan to value ratio would allow you an $80,000 loan for a home appraised at $100,000.

M

MIP

A mortgage insurance premium (MIP) is the monthly insurance that your lender requires for a government backed loan like the FHA and VA if your down payment or equity is 20% or less than the value of the home. This insurance protects the lender in case you default on your loan.

Monthly mortgage payment

Your monthly mortgage payment is made up of principal, interest, taxes, and insurance (often referred to as PITI). If you have Private Mortgage Insurance (PMI) that will also be included in your monthly mortgage payment.

Mortgage term

The number of years over which you would repay this loan if you made the minimum monthly principal and interest payment. The most common terms for mortgages are 15 years and 30 years.

Mortgage/deed of trust

This legally binding document states that you pledge your house as security for repayment of your home loan. You are agreeing to give up your property to the lender if you cannot make your mortgage payments or otherwise default on your home loan.

N

Notice of Periodic Adjustment

The official notification of interest and payment changes to your Adjustable Rate Mortgage.

P

PMI

If your down payment or available equity is less than 20% of the sale price or appraised value, your lender may require you to pay Private Mortgage Insurance (PMI). PMI is paid monthly and insures the lender against loss if you default on your loan.

Pre-paid interest

Pre-paid interest is interest you pay from the day you close your loan to the first day of the next month. If you close on the 20th of a 30-day month, you'll pay 10 days of pre-paid interest before you make your first mortgage payment.

Prepayment penalties

Some lenders charge you a penalty fee if you pay off your loan before the end of the term such as paying off your mortgage in a lump sum payment or paying more in your monthly mortgage payments.

Principal

This is the amount of your loan. If you borrow $100,000, your principal amount is $100,000.

Promissory Note

This is your promise to pay your mortgage. The promissory note tells you what the principal and interest payments are, when they are due, where to send them, and what penalties will occur if you don't pay.

Property value

The property value is the home's market price, if you are purchasing, or its current fair market value if you are refinancing.

If you don't know the property value, you can estimate it using the sales prices of similar homes in your area.

S

Secondary income

Secondary income is any income from sources other than your job or primary source of income, such as alimony, child support or separate maintenance agreements (not required if you do not wish to have that income considered).

Supplemental insurance

This additional insurance protects against damages your homeowner's insurance policy doesn't cover, such as flood, natural disasters, neglect, etc.

T

Third party

A third party is an outside company you or your lender hires to complete a service required to close your loan. The associated cost is called a third party fee.

Truth in Lending (TIL)

Your lender will mail a Truth in Lending (TIL) statement to you when you complete your application and again at closing. Your TIL includes, at a minimum, the amount financed, your annual percentage rate, your total payments and the finance charges in connection with your loan.

U

UMIP

An upfront mortgage insurance premium (UMIP) is a one time insurance fee required for a government backed loan like the FHA if your down payment or equity is 20% or less than the value of the home. This insurance protects the lender in case you default on your loan.

Mortgage Rates

PROGRAM RATE APR

30 Year Fixed conforming  no cost

3.500% 3.500%
15 Year Fixed Conforming  no cost 3.125% 3.125%
Super Jumbo to 2000,000   4.000% 4.180%
Hi Balance 30 Year Fixed   3.750% 3.750%
VA / FHA 30 Year Fixed  3.375% 3.510%

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