Condition in a mortgage that permits the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default takes place.
Additional Principal Payment
The option to reduce the remaining balance on the loan by paying more than the scheduled amount due.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that adjusts throughout the life of the loan in accordance to changes in an index rate. Adjustable-rate mortgages are sometimes referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
The cost of a property in addition to the value of any capital expenditures for upgrades to the property minus any depreciation.
The calendar day that the interest rate adjusts on an adjustable-rate mortgage (ARM).
The duration between adjustment dates for an adjustable-rate mortgage (ARM).
An analysis of a buyers capability to afford the payments of a home. This involves a review of income, liabilities, available funds, and takes into accont the type of mortgage being used, the area where the home will be purchased, and the projected closing costs.
The steady repayment of a mortgage loan, both principal and interest, by installments.
The duration of time necessary to amortize the mortgage loan stated as a number of months. For example, 360 months is the amortization term for a thirty-year fixed-rate mortgage.
Annual Percentage Rate (APR)
The price of credit, stated as an annual rate including interest, mortgage insurance, and loan origination costs. This makes it possible for the buyer to compare loans, however APR should not be mistaken for the actual note rate.
A written evaluation prepared by a licensed appraiser estimating the value of a property.
An estimation of a property’s fair market value, based on an appraiser’s expertise, information, and examination of the property.
Something owned of monetary worth including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
The transmission of a mortgage loan from one person to another person.
An mortgage that can be signed over from the seller to the new buyer. An assumable mortgage requires a credit review of the new borrower and the lender may charge a fee for the assumption. If a mortgage has a due-on-sale clause, it cannot be assumed by a new buyer.
The charge paid to a lender (usually by the buyer of real property) when an assumption occurs.
A financial statement that lists assets, liabilities, and net worth on a specific date.
A mortgage with unchanged monthly payments that amortizes over an expressed term but also calls for a lump sum payment be paid at the end of an earlier specified term.
The last lump sum paid at the maturity date of a balloon mortgage.
Earnings before taxes are subtracted.
Biweekly Payment Mortgage
A means to decrease the amount owed every two weeks (instead of the typical monthly payment plan). The 26 (or possibly 27) biweekly payments are each equivalent to half of the monthly payment required if the loan were a normal 30-year fixed-rate mortgage. The outcome for the borrower is a significant savings in interest.
A second trust that is collateralized by the borrower’s current home allowing the funds to be used to close on a new home prior to the current home being sold. Also known as a “swing loan.”
A person or business that connects borrowers to lenders with the intention of loan origination.
A buydown is when the seller, builder or buyer pays a sum of money up front to the lender to decrease monthly payments during the initial years of a mortgage. Buydowns are able to take place in both fixed and adjustable rate mortgages.
Places a ceiling on how high the interest rate or the monthly payment can increase, either at each adjustment or throughout the duration of the mortgage. Payment caps do not limit the amount of interest the lender is receiving and may cause reverse amortization.
Certificate of Eligibility
A certificate issued by the federal government verifying that a veteran is entitled to a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
A certificate issued by the Department of Veterans Affairs (VA) that determines the highest value and loan amount for a VA mortgage.
The rate of recurrence (in months) of payment and/or interest rate adjustments in an adjustable-rate mortgage (ARM).
A gathering held to complete the sale of a property. The buyer signs the mortgage contract and pays closing expenses. Also known as “settlement.”
These are fees – in addition to the price of the property- that are incurred by buyers and sellers when reassigning ownership of a property. Closing costs typically include an origination fee, property taxes, fees for title insurance and escrow costs, appraisal charge, etc. Closing costs are subject to the geographic location of the loan and the lenders used.
Interest paid on the initial principal balance as well as the accrued and unpaid interest.
Consumer Reporting Agency (or Bureau)
An establishment that manages the preparation of reports used by lenders to decide a potential borrower’s credit history. The agency gets information for these reports from a credit repository and other sources.
A condition in an ARM permitting the loan to be changed to a fixed-rate at certain point during the term. Usually conversion is permitted at the end of the first adjustment phase. The conversion option may cost more.
A document detailing an persons credit history that is prepared by a credit bureau and used by a lender to decide a loan applicant’s creditworthiness.
Credit Risk Score
A credit score quantifies an individual’s credit risk in relation to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most often used by lenders is the FICO® score, done by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is computed by a mathematical equation that assesses various forms of information that is on a credit report. Higher FICO® scores signify lower credit risks, which generally means more favorable loan terms. Credit scores are key in the mortgage underwriting process.
Deed of Trust
The legal record used in some states in place of a mortgage. Title is conveyed to a trustee.
Failure by a borrower to issue mortgage payments on time or fulfill with other obligations of a mortgage.
Failure by a borrower to issue mortgage payments on time.
An amount of money given to oblige the sale of real estate, or an amount of money given to guarantee payment or an advance of money in the processing of a loan.
In an ARM with an opening rate discount, the lender forfeits a number of percentage points in interest to decrease the rate and lower the payments for a part of the mortgage term (generally for one year or less). After the discount period, the ARM rate generally goes up in accordance to its index rate.
A portion of the purchase price of a property that is paid in cash and not included in the mortgage.
Effective Gross Income
A borrowers regular yearly income, which includes overtime that is regular or guaranteed. Salary is generally the main source, however other income may qualify if it is noteworthy and lasting.
The total amount the borrower can financially claim in a property. Equity is the difference between the true price of the property and the sum still owed on the mortgage.