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Adjustable Rate Mortgage

A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called ARM loan - ARM (adjustable rate mortgage) loan or VRMs (variable-rate mortgages).

 

 

Annual Percentage Rate

The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

 

 

Amortization

The gradual repayment of a mortgage loan, both principle and interest, by installments.

 

 

Appraisal

A written analysis prepared by a qualified appraiser and estimating the value of a property.

 

 

Bi-Weekly Mortgage

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.

 

 

Certificate of Eligibility

A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

 

 

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

 

 

Closing Costs

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, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

 

 

Debt-to-income Ratio

To calculate your debt-to-income ratio, divide all your monthly debt payments by your gross monthly income. This number is one of the ways lenders assess your ability to manage the monthly mortgage payments for the loan amount you are considering.

 

 

Down Payment

Part of the purchase price of a property that is paid in cash and not financed with a mortgage.

 

 

Equity

The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

 

 

Escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.

 

 

Fixed Rate Mortgage

Mortgage interest that is fixed throughout the entire term of the loan.

 

 

Loan-to-value Ratio

The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

 

 

Mortgage (or Deed of Trust)

A legal document that pledges a property to the lender as security for payment of a debt.

 

 

Origination Fee

A fee paid to a lender for providing the mortgage loan. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

 

 

Points

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

 

 

Principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

 

 

Private Mortgage Insurance

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

 

 

Truth in Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

 

 

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