Glossary of Terms
2/1 Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term.
Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.
Adjustment
Date
The date that the interest rate changes on an
adjustable-rate mortgage (ARM).
Amortization
The gradual repayment of a mortgage loan, both principal
and interest, by installments.
Assignment
The transfer of a mortgage from one person to another.
Balloon
Payment
The final lump sum paid at the maturity date of a balloon
mortgage.
Before-tax
Income
Income before taxes are deducted.
Buydown
When
the seller, builder or buyer pays an amount of money up
front to the lender to reduce monthly payments during the
first few years of a mortgage.Buydowns can occur in both
fixed and adjustable rate mortgages.
Delinquency
Failure to make mortgage payments on time.
First
Mortgage
The primary lien against a property.
Fixed-Rate
Mortgage (FRM)
A mortgage interest that are fixed throughout the entire
term of the loan.
Guarantee Mortgage
A mortgage that is guaranteed by a third
party.
Housing
Expense Ratio
The percentage of gross monthly income budgeted to pay
housing expenses.
Installment
The regular periodic payment that a borrower agrees to
make to a lender.
Interest
The fee charged for borrowing money.
Interest
Rate Floor
For an adjustable-rate mortgage (ARM), the
minimum interest rate, as specified in the mortgage note.
Liabilities
A person's financial obligations. Liabilities include
long-term and short-term debt.
Lifetime
Payment Cap
For an adjustable-rate mortgage (ARM), a
limit on the amount that payments can increase or
decrease over the life of the mortgage.
Liquid
Asset
A cash asset or an asset that is easily converted into
cash.
Loan
A sum of borrowed money (principal) that is generally
repaid with interest.
Maturity
The date on which the principal balance of a loan becomes
due and payable.
Mortgage
A legal document that pledges a property to the lender as
security for payment of a debt.
Mortgage
Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.
Mortgagor
The borrower in a mortgage agreement.
Net
Worth
The value of all of a person's assets, including cash.
Non
Liquid Asset
An asset that cannot easily be converted into cash.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a
loan before it is due.
Principal,
Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment.
Principal refers to the part of the monthly payment that
reduces the remaining balance of the mortgage. Interest
is the fee charged for borrowing money. Taxes and
insurance refer to the monthly cost of property taxes and
homeowners insurance, whether these amounts that are paid
into an escrow account each month or not.
Real
Estate Agent
A person licensed to negotiate and transact
the sale of real estate on behalf of the property owner.
Recording
The noting in the registrar’s office of the details
of a properly executed legal document, such as a deed, a
mortgage note, a satisfaction of mortgage, or an
extension of mortgage, thereby making it a part of the
public record.
Refinance
Paying off one loan with the proceeds from a new loan
using the same property as security.
Secondary Mortgage Market
Where existing mortgages are bought and sold.
Security
The
property that will be pledged as collateral for a loan.
Total
Expense Ratio
Total obligations as a percentage of gross monthly income
including monthly housing expenses plus other monthly
debts.
Treasury
Index
An index used to determine interest rate
changes for certain adjustable-rate mortgage (ARM) plans.
Based on the results of auctions that the U.S. Treasury
holds for its Treasury bills and securities or derived
from the U.S. Treasury's daily yield curve, which is
based on the closing market bid yields on actively traded
Treasury securities in the over-the-counter market.
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