Glossary Glossary Index | A B C | D E F | G H I J K L M N | O P Q R S T U V Z   Adjustable Rate Mortgage (ARM)   A type of mortgage (commonly called an ARM) in which the interest rate is tied to a certain economic index and may adjust at certain times. The initial interest rate is usually lower than that offered with a fixed-rate mortgage. This means that the monthly repayment amount will also be lower. However, your customer's monthly payment may go up or down at intervals specified in the ARM product disclosure, depending on the current interest rate. Most adjustable-rate mortgage programs offer the protection of a rate cap, which limits the amount the rate can be increased each year, as well as over the life of the loan. The lower initial rate of an ARM can increase purchasing power and enable a buyer to purchase a more expensive home than may be possible with a fixed-rate mortgage. Keep in mind that the interest rate may increase in future years, making future monthly payments higher.   Back to glossary index   Adjustment Date   The date the interest rate changes for an adjustable-rate mortgage. To change to another type of loan, such as a fixed-rate loan, a borrower should contact the lender at least 3 months before this adjustment date, but should keep in mind that not all ARMS have a conversion option.   Back to glossary index   Adjustment Period   The amount of time between the adjustment dates for an adjustable-rate mortgage. For example, the interest rate for a six-month ARM may go up, down, or stay the same every six months.   Back to glossary index   Amortization   The periodic repayment of the loan balance. As the borrower pays each month, a portion goes to the loan principal and a portion goes towards the interest. An amortization schedule shows the balance after each payment is made.   Back to glossary index   Amortization Term   The amount of time a borrower has to repay the mortgage loan. It's usually shown as a number of months. For example, the amortization term for a 30-year mortgage is 360 months (30 years x 12 months).   Back to glossary index   Annual Percentage Rate (APR)   The APR is a measure of the cost of credit, expressed as a nominal, yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made.   Back to glossary index   Application   The process of supplying a lender with personal information such as income, assets, and financial obligations. The lender evaluates and verifies this information, while keeping in mind the type of mortgage loan the borrower wants.   Back to glossary index   Appraisal   A professional, written opinion of a property's estimated market value by an impartial party. The value is estimated based on the property's style and appearance, construction quality, usefulness, and the value of similar properties in the same or nearby community that recently have been sold. An appraisal is NOT a warranty of value and does not indicate that a property is a habitable, sound, etc.   Back to glossary index   Appreciation   An increase in the value of a property due to market conditions or other causes. Of course, market conditions can also cause depreciation in a property.   Back to glossary index   Asset   Anything of monetary value owned by a borrower, including real property, personal property, bank accounts, stocks, mutual funds, etc. A review of assets is a basic part of the mortgage application process.   Back to glossary index   Balloon Mortgage   A short-term, fixed-rate mortgage loan with fixed monthly payments followed by one large final payment to pay off the loan balance (the 'balloon'). The mortgage is amortized over the full term of the loan repayment period resulting in lower monthly payments, but at the end of a specified period the balance of the mortgage comes due. For example, with a 7-year balloon a borrower would make monthly payments for seven years that have been calculated based on a 30-year mortgage payment. At the end of the seven years, the remaining principal balance is due and payable in full.   Back to glossary index   Balloon Payment   The final lump sum payment made at the maturity date of a balloon mortgage. A borrower may be able to refinance the loan when this payment is due. Check with the lender for this possibility.   Back to glossary index   Borrower   The person applying for the mortgage loan and who will be responsible for repaying the loan. There may be more than one borrower on a loan.   Back to glossary index   Bridge Loan     A mortgage loan which enables a borrower to obtain financing for a new house before their present house is sold. The present home is used as collateral. Also known as a swing loan.   Back to glossary index   Cap (Interest Rate)   A limit on how much the interest rate on an ARM loan can change in an adjustment period or over the life of the loan. For example, if your adjustment cap is 1% and your current interest rate is 6%, then the newly adjusted rate will be between 5% and 7%. A lender will provide this information for each of its ARM products.   Back to glossary index   Cap (Payment)   A limit to how much monthly payments on an ARM can change at each adjustment period. This type of cap does not limit the amount of interest a lender is earning and may cause negative amortization.   Back to glossary index   Cash-Out Refinance   A refinance transaction in which the new loan amount is greater than the remaining balance of all current mortgages. Many homeowners use this option to finance home improvements, debt consolidation, or take needed cash from the equity built up in the property.   Back to glossary index   Closing   Also called settlement. Closing is the conclusion of a real estate transaction. Documents that transfer legal ownership of the property are signed and closing costs are paid at this time.   Back to glossary index   Closing Costs   Costs necessary to transfer ownership of a property and to close the mortgage loan. These may be paid by the buyer and/or the seller, and may include an origination fee, attorney's fee, taxes, and charges for obtaining title insurance and a survey. Closing costs will vary according to geographic location.   Back to glossary index   Closing Statement   A disclosure listing that itemizes all charges imposed upon parties to a real estate closing, including escrow deposits for taxes, homeowner's insurance, and mortgage insurance. Also referred to as the HUD-1, it is prepared by the closing agent.   Back to glossary index   Co-Borrower   If more than one person will be responsible for repaying the loan, they are called Co-Borrowers.   Back to glossary index   Commitment Letter   A statement by a lender detailing the terms and conditions under which it agrees to lend money to a consumer. Also known as a loan commitment.   Back to glossary index   Community Property   In some states, property acquired during a marriage is considered jointly owned or community property, unless it is acquired as separate property of either spouse prior to the marriage.   Back to glossary index   Comparables   Recently sold properties with similar characteristics to the property being appraised. Comparables help the appraiser determine the approximate fair market value of the subject property. They have reasonably the same size, location, and amenities.   Back to glossary index   Condominium   A form of home ownership in which the owner owns the airspace within the walls, but doesn't own the actual walls, ceilings or floors of his home. The owner also may own a percentage of the common areas such as a swimming pool.   Back to glossary index   Conforming Loan   A mortgage loan that meets all the requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac. The maximum conforming loan amount is $300,700 for a one-unit property.   Back to glossary index   Construction Loan   A short-term, interim loan for financing the cost of construction. The lender makes payments directly to the builder or contractors at periodic intervals as the home is built.   Back to glossary index   Consumer Credit Reporting Agency (or Bureau)   A credit bureau gathers, records, updates, and stores financial and public record information about the payment records of individuals. A potential borrower must give a lender permission to access their credit history during the qualification process. The lender receives reports from these agencies to evaluate credit.   Back to glossary index   Contingency   A condition that must be met before a sales contract is legally binding. For example, when buying a home, the contract may not be binding until a satisfactory home inspection report is obtained from a qualified home inspector.   Back to glossary index   Conventional Mortgage   Loans that are not part of a government-housing program, and are not insured or guaranteed by the federal government.   Back to glossary index   Conversion Clause   A provision in some adjustable-rate mortgages that allows a borrower to change the ARM to a fixed-rate mortgage.   Back to glossary index   Convertible ARM   An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions, either by refinancing or a conversion option.   Back to glossary index   Co-op or Cooperative   A form of multiple ownership in which a corporation or business trust entity holds title to a property, (usually an apartment complex) and grants occupancy rights to shareholder tenants through proprietary leases.   Back to glossary index   Corporate Relocation   An arrangement under which an employer moves an employee to another area of the country is considered a corporate relocation. As part of the relocation agreement, the employer may pay a portion of the mortgage-related expenses.   Back to glossary index   Credit   The exchange of something of value in exchange for a promise to repay the lender at a later date.   Back to glossary index   Credit History   The recorded information concerning an individual's debt and repayment history.   Back to glossary index   Credit Report   A report, which verifies credit standing, based on an individual's repayment and debt history.   Back to glossary index   Credit Repository   Also known as a credit reporting agency or bureau, a credit repository gathers, records, updates, and stores financial and public record information about the payment records of individuals. Potential borrowers must give a lender permission to access their credit history during the qualification process. The lender receives reports from these agencies to evaluate the borrower's credit.   Back to glossary index