7/1 and 10/1 ARMs
mortgages are rates that are fixed for a 3 year, 5 year, 7 year or 10 year
period and may adjust annually after that. Also known as Hybrid loans.
Rate Mortgage (ARM)
on which the monthly payments will increase or decrease over time. An ARM’s
interest rate may be tied to the 11th District Cost of Funds, one-year and six-month
T-bill. ARM payments are typically adjusted every six months or once a year.
The gradual repayment of a mortgage through monthly payments. In the early years
of a mortgage, most of the monthly payment goes toward interest. Later in the
mortgage, more of the payment goes toward reducing the loan’s principal
The annual cost of a mortgage, including interest, loan fees and other costs,
stated as a percentage of the loan amount.
– An opinion of the market value of a home expressed by a professional
real estate appraiser.
transfer of a mortgage from one person to another.
- An assumable mortgage can be transferred from the seller to the new buyer.
Generally requires a credit review of the new borrower and lenders may charge
a fee for the assumption. If a mortgage contains a due-on-sale clause,
it may not be assumed by a new buyer.
- When the lender and/or the home builder subsidized the mortgage by lowering
the interest rate during the first few years of the loan. While the payments
are initially low, they will increase when the subsidy expires.
Provisions of an adjustable rate mortgage which limit how much the interest
rate can change at each adjustment period (i.e., every six months or once a
year) or over the life of the loan (rate cap). A payment cap limits how much
the payment due on the loan can increase or decrease.
Expenses, in addition to the price of the home, incurred by buyers and sellers
when a home is sold. Common closing costs include escrow fees, title insurance
fees, document recording fees, real estate commissions and transfer tax.
- A short term interim loan to pay for the construction of buildings or homes.
These are usually designed to provide periodic disbursements to the builder
as he or she progresses.
– A loan not guaranteed, insured or made by the federal or state government.
- A credit risk score is a statistical summary of the information contained
in a consumer's credit report. The most well known type of credit risk
score is the Fair Issac or FICO score. This form of credit scoring is
a mathematical summary calculation that assigns numerical values to various
pieces of information in the credit report. The overall credit risk score
is highly relative in the credit underwriting process for a mortgage loan.
The ratio of monthly debt payments to monthly gross income. Lenders use a debt-to-income
(or DTI) ratio to determine whether a borrower’s income qualifies him
or her for a mortgage.
A legal document conveying ownership of property.
- When a mortgage is written with a monthly payment that is less than required
to satisfy the note rate, the unpaid interest is deferred.
The portion of the home’s purchase price the buyer pays in cash.
The deposit given by a buyer to a seller to show that the buyer is serious about
purchasing the home. Earnest money binds the contract. Earnest money usually
is refundable to homebuyers in the event a contingency of the sale contract
cannot be met.
The difference between a home’s value and the mortgage amount owed on
The holding of documents and money by a neutral third party until all parties
and Freddie Mac –
The Federal National Mortgage Association, and the Federal Home Loan Mortgage
Corporation are government sponsored, privately-owned entities which purchase
mortgages from lenders and turn the mortgages into securities which are bought
by investors. Fannie Mae and Freddie Mac are the key secondary mortgage market
Home Loan Mortgage Corporation (FHLMC) also called Freddie Mac -
Is a quasi-governmental agency that purchases conventional mortgage from insured
depository institutions and HUD-approved mortgage bankers.
A loan on which the interest rate and monthly payments do not change.
Often short-term money lent from one individual to another. These interest rates are usually much higher than those found in conventional or government financing.
A policy which protects against damage to a property caused by fire, wind or
A policy that covers certain repairs (such as plumbing or heating) of a newly-purchased
home for a certain period of time.
An account established by a lender to collect a borrower’s property tax
and insurance payments. Impound accounts are normally required on mortgages
with down payments of 10 percent or less.
A published interest rate which lender measure the difference between the current
interest rate on an adjustable rate mortgage and that earned by other investments
(such as one- three- and five-year U.S. Treasury security yields, the monthly
average interest rate on loans closed by savings and loan institutions, and
the monthly average costs of funds incurred by savings and loans), which is
then used to adjust the interest rate on an adjustable mortgage up or
ratio of the amount of money owned on a home to the home’s value. The
LTV ratio for a $100,000 home financed with a $90,000 mortgage would be 90 percent.
The amount a lender adds to the index on an adjustable rate mortgage to establish
the adjusted interest rate.
company which originates mortgages for sale into the secondary mortgage market
(for example to Fannie Mae or Freddie Mac).
A company that matches borrowers with lenders. Mortgage brokers do not originate
The ability of mortgage borrowers to deduct the interest paid on a home loan
for purposes of federal and state income taxes.
- Occurs when your monthly payments are not large enough to pay all the interest
due on the loan. This unpaid interest is added to the unpaid balance of
the loan. The danger of negative amortization is that the home buyer ends
up owing more than the original amount of the loan.
- No doc loans are for self-employed and commissioned individuals and the loan
requires no documentation from the borrower such as tax returns, pay stubs or
bank statements (which is normally required on other home loan programs).
No doc loans are hard to find because most banks do not offer them. Many
banks do not like no doc loans because the lender takes on a greater risk because
the lender is lending money based upon just the borrower’s credit score,
rather than on their documented and closely analyzed ability to pay back the
A fee charged by a lender for making a mortgage.
Principal, interest, taxes and insurance, the primary component of a monthly
One point equals "one" percent of the mortgage amount. Points are
charged by lender to increase the lender’s return on the mortgage. Typically,
lenders may charge anywhere from zero to two points. Loan points are tax deductible.
- A legal document authorizing one person to act on behalf of another.
- Money charged for an early repayment of debt. Prepayment penalties are
allowed in some form (but necessarily imposed) in many states.
The loan amount borrowed or still owed.
Mortgage Insurance –
Insurance issued by private insurers which protects lenders against a loss if
a borrower defaults on a mortgage with a low down payment (less than 20 percent).
- Calculations used to determine if a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as a percent
of income ratio and total debt obligations as a percent of income ratio.
A real estate broker or agent who is a member of the local Board of Realtors,
a state Association of Realtors and the National Association of Realtors. Realtors
adhere to a high standard of professionalism and strict code of ethics.
- The place where primary mortgage lenders sell the mortgages they make to obtain
more funds to originate more new loans. It provides liquidity for the
A financing agreement in which a seller provides part (or all) of the financing
needed by a buyer to purchase the seller’s home.
Interest which is computed only on the principle balance.
The right of ownership in the property.
Insurance to protect the buyer and lender against losses arising from disputes
over the ownership of property.
The process of evaluating a loan application to determine if it meets the lender’s