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Glossary of Terms
  1.  
    1. Annual Percentage Rate (APR) – The annual percentage rate equals the total interest rate paid over the life of the loan combined with the pre-paid finance charges and presented in percentage form.
    2. Pre-Paid Finance Charges – Pre-Paid finance charges are fees that benefit only the lender. A borrower does not benefit from an origination fee, only the lender benefits. Therefore, an origination fee is a pre-paid finance charge. On the other hand, a documentation fee is beneficial to both the borrower and the lender; therefore, it is not considered a pre-paid finance fee. All fees that benefit only the lender, such as tax service contracts, mortgage insurance, origination fee, and interest are classified as pre-paid finance charges.
    3. Amount Financed – The amount financed is the loan amount minus the pre-paid finance charges. This amount is shown separately to allow the borrower to understand that, in addition to the down payment, they are responsible for the actual loan amount. The actual loan amount is higher than the amount financed, which is the loan amount minus the fees.
    4. Finance Charge – The finance charge is the amount of the interest or cost of credit calculated at the interest rate over the life of the loan plus the pre-paid finance charges and the total amount of any required mortgage insurance charged over the life of the loan. It is the dollar version of the annual percentage rate (APR).
    5. Truth-In-Lending Act (TILA-Regulation Z) – This Act provides the applicant with advance information regarding the estimated costs of financing the loan with three days of the loan application.
    6. Important Ratios
      1. Combined-Loan-To-Value (CLTV) – the LTV of the property plus the amount of money the borrower may request for a second or third mortgage or home equity loans or lines of credit. Expressed in percentage form.
      2. Debt-To-Income Ratio (DTI) – A ratio in which the gross income is divided by the housing payment of Principal, Interest, Taxes, and Insurance (PITI). This figure gives the "Front-End Ratio". Taking the gross income and dividing the number by the total of all expenses including the housing payment and installment and revolving account payments calculate the "Back-End Ratio". Acceptable ratios would be 36/40. Ratios requirements are different from lender to lender and are subject to the lending policies of the specific lender.
      3. Income ratio – "Top or Front-End Ratio" used for loan qualifying purposes. The ratio compares borrower’s gross monthly income to the monthly loan payment, which includes Principal, Interest, Taxes, mortgage insurance premium (MIP)/private mortgage insurance (PMI) and homeowners insurance.
      4. Loan-To-Value (LTV) – the percentage of a property’s value that a lender can or may loan to the borrower. The percentage of the amount of money requested in relation to the property’s value.

        Loan Types

      5. Adjustable- Rate Mortgage (ARM) – This is a type of mortgage whose interest rate and monthly payments vary throughout its life. ARM’s typically start with an unusually low interest rate (see teaser rate). If the overall level of interest rates drops, as measured by a variety of different indexes (see indexes), the interest rate of the ARM generally follows suit. Similarly, if interest rates rise, so does the mortgage’s interest rate and monthly payments. Although the ARM does fluctuate with current interest rates, there is a limited amount a rate can increase. These caps as prescribed by the NOTE (see periodic caps and life caps) limit the amount that the interest rate can change.
      6. Balloon Loans – Loans that the amortized term is greater than the due date of the loan. For example, 30 years amortized all due in 10 years. The payment is based on 30-year calculations.
      7. Bridge Loan – The use of equity from one property to secure funds to obtain interest in another property.
      8. Conventional Loan – A mortgage loan that is not insured, guaranteed, or funded by the federal or state government.
      9. Convertible Adjustable-Rate Mortgages – An Adjustable-Rate Mortgage (ARM) that changes to a fixed-rate mortgage after a specific time period as designated in the NOTE by the action of the borrower. Typically, the time frame is after the 13th month and before the 60th month.
      10. Home Equity Loan – Generally a second mortgage that uses the equity of the property to secure the loan.
      11. Home Equity Line of Credit – comparable to a Home Equity Loan, but the payment is based on the amount of the loan that has been utilized. Similar to a credit card in that it is a revolving type of credit. You don’t pay for what you don’t use.
      12. Jumbo Loans – mortgage loans that exceed the dollar amount as established for Fannie Mae (FNMA) and/or Federal Home Loan Mortgage Corporation (FHLMC).
      13. Second Mortgage – a supplemental loan that is based on the homes equity. Payments are fixed for the life of the loan.

      Adjustable-Rate Mortgages (See Loan Types)

      1. Index – A nationally recognized interest indicator that is used by lenders to establish rates for adjustable-rate loans (ARM).
      2. Life Cap – the maximum limit that has been set, per the note, for the interest rate to reach during the life of the loan.
      3. London Interbank Offered Rate Index (LIBOR) – an international interest index used as a benchmark for establishing adjustable-rate mortgages (ARM). The rate at which international banks lend to one another.
      4. Margin – the difference between Index and the final rate of an adjustable-rate mortgage (ARM).
      5. Periodic Cap – the maximum limit per rate adjustment during the pre-determined periods of adjustment during the life of the loan.
      6. Teaser Rate – the initial rate the most adjustable-rate mortgages (ARM) start.

       

      General

      1. Amortization – The process of gradually paying down a debt, usually by making monthly payments as described within the NOTE. In the early years of a mortgage, most of the monthly payment goes toward interest. This picks an amount of time, at the approximate mid-point of the term, and the ratio is reversed i.e. most of the monthly payment will go towards the principal.
      2. Amount Financed – The amount financed is the loan amount minus the pre-paid finance charges. This amount is shown separately to allow the borrower to understand that, in addition to the down payment, they are responsible for the actual loan amount. The actual loan amount is higher than the amount financed, which is the loan amount minus the fees.
      3. Annual Percentage Rate (APR) – The annual percentage rate equals the total interest rate paid over the life of the loan combined with the pre-paid finance charges and presented in percentage form. As a result of the pre-paid finance charges, the APR is invariable higher than the rate of interest that the NOTE indicates.
      4. Closing Costs – Cost that generally cover the following: points (loan fee), appraisal, credit report, pre-paid mortgage interest (interest covering the period of time in which the loan is funded through the first payment), homeowners insurance premium, pro-rated property taxes, and recording and transferring charges.
      5. Contingencies – Conditions that must be satisfied prior to completion of the sale of the property either by the buyer or seller, as subject to the sales contract. For example: the buyer obtaining a purchase money loan, property passing a physical inspection by a licensed contractor, clear title report, etc.
      6. Conveyance - a written instrument used to transfer (convey) title to the property, or an interest therein.
      7. Discount Point – The amount paid by seller or buyer to the lender to achieve a specific interest rate. One point equals 1% of the loan amount.
      8. Discount Rate – The difference in the percentage points between the initial interest rate and the fully indexed rate (index rate plus margin).
      9. Escrow – the holder of important documents and monies related to the purchase/sale of real estate by a neutral third party prior to the close of the transaction.
      10. Fannie Mae (FNMA) – Federal National Mortgage Association
      11. Finance Charge – The finance charge is the amount of the interest or cost of credit calculated at the interest rate over the life of the loan plus the pre-paid finance charges and the total amount of any required mortgage insurance charged over the life of the loan. It is the dollar version of the annual percentage rate (APR).
      12. Grant Deed – The instrument that conveys or transfers interest.
      13. Impound Account – A trust type of account maintained by lenders for the accumulation of borrowers funds to meet periodic payments of taxes, private mortgage insurance premiums, FHA mortgage insurance premiums, or future insurance policy premiums required to protect their security. Impounds are usually collected with the note payment.
      1. Pre-Paid Finance Charges – Pre-Paid finance charges are fees that benefit only the lender. A borrower does not benefit from an origination fee, only the lender benefits. Therefore, an origination fee is a pre-paid finance charge. On the other hand, a documentation fee is beneficial to both the borrower and the lender; therefore, it is not considered a pre-paid finance fee. All fees that benefit only the lender, such as tax service contracts; mortgage insurance, origination fee, and interest are classified as pre-paid finance charges.
      2. Private Mortgage Insurance (PMI) – a private insurance company that insures the top 20 to 25 percent of the mortgages as an incentive for lenders to exceed certain established prudent guidelines.
      3. Real Property – a legal term describing the land and the buildings upon it.
      4. Truth-In-Lending Act (TILA-Regulation Z) – This Act provides the applicant with advance information regarding the estimated costs of financing the loan with three days of the loan application.

       
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