GLOSSARY Adjustable Rate Mortgage (ARM)
A loan which has a variable interest tied to a pre determined index, usually LIBOR or T-Bill Amortization
Repayment of a loan towards principal and interest, calculated over a fixed time period Annual Percentage Rate (APR)
The interest rate reflected as a yearly rate, taking into account points and other fees Balloon Mortgage
A loan that has a specified payment period and then requires one, lump sum payment of the remaining balance at the end of the payment period Bi-weekly Mortgage
A mortgage that requires payment twice a month, with each payment being half of the normal monthly payment amount. This results in one extra payment per year, effectively reducing the amortization period to 22 years, instead of 30 years, and subsequently reducing payment towards interest over the life of the loan Broker
An individual or company that brings borrowers and lenders together, but does not actually lend money to the borrower. Brokers shop around for the best lender on behalf of the borrower, and charge a fee for their services Buy-down
Loan which has a reduced rate, and is achieved by the borrower paying for that lower rate Caps
The limits that the rate can change on an adjustable rate mortgage Cash-out Refinance
A refinance loan in which the new loan amount is greater than the current loan balance, resulting in cash proceeds to the borrower Closing
The meeting between the borrower, lender, and other relevant parties where the property and funds legally change hands Closing Costs
Costs that borrowers must pay at the closing of their loan. Usually consist of lender fees, title fees, escrows and interest Conforming Loan
Loan amount which is less than $359,650. Fannie Mae determines this limit and adjusts it each year based on inflation and other factors. Credit Report
A report documenting a borrower’s credit activity Credit Score
A score ranging from 300 to 900 which reflects the credit worthiness of a borrower, and is primarily determined by timeliness of past loan payments Debt-to-Income Ratio
A borrower’s monthly payment obligations divided by his/her monthly income. Underwriters consider this ratio when deciding whether to approve or decline a loan, and generally it should be less than 38%, but in some cases can be as high as 50%. Discount Point
Payment to the lender to lower the interest rate. One discount point equals one percent of the loan amount. Down Payment
Money that borrowers need to pay at the closing of the loan. The down payment is the difference between the home’s value and the loan amount. Paying a higher down payment will result in a smaller loan amount and smaller monthly payments. Generally, the down payment is 20% of the home’s value, but zero-down loans are available also. Equity
The difference between the value of a home and the debt owed on that home Escrow
A third party who handles the closing of a loan. Escrows also refer to the taxes and insurance payments that borrowers pay at the closing of the loan. FICO
A credit scoring model that assigns credit scores from 300 to 900, depending on the creditworthiness of a borrower Fixed-Rate Mortgage
A loan that has an interest-rate which is fixed for the life of the loan Good Faith Estimate
A written estimate which lenders provide to borrowers indicating an estimate of the closing costs Home Equity Line of Credit (HELOC)
A line of credit based on the equity in the borrower’s home, and uses the property as collateral HUD1
A statement which the title company provides to borrowers at the loan closing which details the costs associated with the loan Impounds
Government taxes and homeowners insurance which borrowers are required to pay in advance at the closing of the loan Index
A published interest rate which lenders use to base interest-rate changes on an adjustable-rate loan. Common indices are LIBOR and T-Bill Interest
Money paid to the lender over the life of the loan which exceeds the loan amount, and acts as compensation to the lender. Essentially, it is the cost of borrowing money Interest Rate
The rate which determines a borrower’s monthly payments, based on market conditions. Essentially, it is the price of a loan. A higher interest rate results in a higher monthly payment Jumbo Loan
A loan amount that exceed $359,650, an amount set by Fannie Mae. Jumbo loans have slightly higher interest rates than conforming loans Lender
The party which loans money to an individual for the purchase or refinance of a property Loan-to-Value Ratio
The loan amount divided by the value of the property. A standard loan-to-value ratio is 80% Margin
The amount which a lender adds to an index of an adjustable-rate mortgage to determine the interest-rate to a borrower Note
A legal document which requires a borrower to repay a loan over given time period Origination Fee
A fee charged by lenders to cover the costs of processing a loan PITI
Principal, interest, taxes and insurance. The factors which make-up a borrower’s monthly mortgage payment. Point
Payment to the lender to lower the interest rate. One point equals one percent of the loan amount Prepayment Penalty
Money charged by a lender when a borrower purchases or refinances their home within a set time period, usually 3 or 5 years. Loans with prepayment penalties have lower interest rates in exchange for the added restriction. Private Mortgage Insurance(PMI)
Monthly insurance cost which borrowers must pay on loans which exceed 80% of the home’s value Refinance
Repaying a loan with a new loan, using the same property as collateral. The new loan usually has more favorable conditions in comparison to the original loan. Settlement
The meeting between the borrower, lender, and other relevant parties where the property and funds legally change hands Title – the right of ownership to a property Title Insurance
A policy which insures a borrower from losses resulting in errors or disputes in the ownership of property Underwriting
The process of determining whether a loan should be approved or declined
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