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Mortgage Glossary

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A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a FICO score above 720.

Acceleration Clause
A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.

Accrued Interest
Interest that is earned but not paid, adding to the amount owed.

Adjustable Rate Mortgage (ARM)
A mortgage on which the interest rate, after an initial period, can be changed by the lender.

Adjustment Interval
On an ARM, the time between changes in the interest rate or monthly payment.

Agreement of Sale
A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

A mortgage risk categorization that falls between prime and sub-prime, but is closer to prime. Also referred to as "A minus".

The repayment of principal from scheduled mortgage payments that exceed the interest due.

Amortization schedule
A table showing the mortgage payment, broken down by interest and amortization, the loan balance, tax and insurance payments if made by the lender, and the balance of the tax/insurance escrow account.

Amount financed
On the Truth in Lending form, the loan amount less "prepaid finance charges", which are lender fees paid at closing.

A request for a loan that includes the information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision.

Application fee
A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender declines the loan.

A written estimate of a property's current market value prepared by an appraiser.

The Annual Percentage Rate, which must be reported by lenders under Truth in Lending regulations. It is a measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges by the lender. The charges covered by the APR also include mortgage insurance premiums, but not other payments to third parties, such as payments to title insurers or appraisers. The APR is adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid in the future. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons.

Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's qualification requirements and also its underwriting requirements.

A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Unless the lender also agrees, however, the seller remains liable for the mortgage.

Assumable mortgage
A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller.

Automated underwriting
A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, or whether the application will be forwarded to an underwriter.

Back-end fee or commission
Mortgage broker income paid by the lender, same as yield-spread premium and egative points.

The amount of the original loan remaining to be paid.

Balloon mortgage
A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is refinanced with the current or another lender.

Bimonthly mortgage
A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.

Biweekly mortgage
A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Bridge loan
A short-term loan, usually from a bank, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale.

A permanent buy-down is the payment of points in exchange for a lower interest rate.

Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs.

Cash-Out refi
Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes "cash-out" of the transaction. This way of raising cash is usually an alternative to taking out a home equity loan.

On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan. On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender.

CMG plan
A technique for repaying a loan early that involves using the mortgage as a substitute for a checking account.

One or more persons who have signed the note, and are equally responsible for repaying the loan. Unmarried co-borrowers who live together are advised to agree beforehand on what happens if they split..

Cost of funds index. One of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.

Conforming mortgage
A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.

Construction financing
The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

Conventional mortgage
A home mortgage that is neither FHA-insured nor VA-guaranteed.

Conversion option
The option to convert an ARM to an FRM at some point during its life. These loans are likely to carry a higher rate or points than ARMs that do not have the option.

Cost of savings index. One of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.

Co-signing a note
Assuming responsibility for someone else's loan in the event that that party defaults. A risk not to be taken lightly.

Credit report
A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual's credit history.

Credit score
A single numerical score, based on an individual's credit history, that measures that individual's credit worthiness.

Cumulative interest
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money.

Current index value.
The most recently published value of the index used to adjust the interest rate on an indexed ARM.

Debt consolidation
Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later.

Debt elimination
Scams designed to relieve you of your money by promising to eliminate your mortgage debt.

Deed in lieu of foreclosure
Deeding the property over to the lender as an alternative to having the lender foreclose on the property.

Failure of the borrower to honor the terms of the loan agreement. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

A mortgage payment that is more than 30 days late.

Demand clause
A clause in the note that allows the lender to demand repayment any time for any reason.

Documentation requirements
The set of lender requirements that specify how information about a loan applicant's income and assets must be provided, and how it will be used by the lender.

Down payment
The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price.

Dual index mortgage
A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index.

Due-on-sale clause
A provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market.

Effective rate
A term used in two ways. In one context it refers to a measure of interest cost to the borrower that is identical to the APR except that it is calculated over the time horizon specified by the borrower. In most texts on the mathematics of finance, however, the "effective rate" is the quoted rate adjusted for intra-year compounding.

In connection with a home, the difference between the value of the home and the balance of outstanding mortgage loans on the home.

An agreement that money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement. It is common for home mortgage transactions to include an escrow agreement where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due.

Fannie Mae
One of two Federal agencies that purchase home loans from lenders. (The other is Freddie Mac). Both agencies finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools. The securities are guaranteed by the agencies. They also raise funds by selling notes and other liabilities.

The sum of all upfront cash payments required by the lender as part of the charge for the loan.

FHA mortgage
A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium. The major advantage of an FHA mortgage is that the required down payment is very low, but the maximum loan amount is also low.

First mortgage
A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan.

Fixed rate mortgage (FRM)
A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing. Allowing the rate to float exposes the borrower to market risk.

A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap.

The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults.

Forbearance agreement
An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency.

Freddie Mac
One of two Federal agencies that purchase home loans from lenders. The other is Fannie Mae.

Front-end fee
Mortgage broker income paid by the borrower, as distinguished from the fee paid by the lender, which is "back-end".

Fully amortizing payment
The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life.

Fully indexed interest rate
The current index value plus the margin on an ARM.

Gift of equity
A sale price below market value, where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members.

Good fairy syndrome
A belief that somewhere out there is a good fairy who will solve all our financial (and other) problems.

Good faith estimate
The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application.

Grace period
The period after the payment due date during which the borrower can pay without being hit for late fees. Grace periods apply only to mortgages on which interest is calculated monthly.

Graduated payment mortgage (GPM)
A mortgage on which the payment rises by a constant percent for a specified number of periods, after which it levels out over the remaining term and amortizes fully.

Graduation period
The interval at which the payment rises on a GPM.

Graduation rate
The percentage increase in the payment on a GPM.

Hazard/Homeowners insurance
Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards.

Homebuyer protection plan
A plan purporting to protect FHA homebuyers against property defects.

Home equity line of credit (HELOC)
A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount.

Housing expense
The sum of mortgage payment, hazard insurance, property taxes, and homeowner association fees.

HUD1 form
The form a borrower receives at closing that details all the payments and receipts among the parties in a real estate transaction, including borrower, lender, home seller, mortgage broker and various other service providers.

Hybrid ARM
An ARM on which the initial rate holds for some period, during which it is "fixed-rate", after which it becomes adjustable rate. Generally, the term is applied to ARMs with initial rate periods of 3 years or longer.

Indexed ARM
An ARM on which the interest rate adjusts mechanically based on changes in an interest rate index, as opposed to a "discretionary ARM" on which the lender can change the rate at any time subject only to advance notice.

Initial interest rate
The interest rate that is fixed for some specified number of months at the beginning of the life of an ARM.

Interest accrual period
The period over which the interest due the lender is calculated.

Interest cost
A time-adjusted measure of cost to a mortgage borrower. It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes.

Interest due
The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period.

Interest-only mortgage
A mortgage on which for some period the monthly mortgage payment consists of interest only.

Interest payment
The dollar amount of interest paid each month.

Interest rate
The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis.

Interest rate adjustment period
The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period.

Interest rate ceiling
The highest interest rate possible under an ARM contract; same as "lifetime cap." It is often expressed as a specified number of percentage points above the initial interest rate.

Interest rate floor
The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.

Interest rate increase cap
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points, but may be 5 points if the initial rate period is 5 years or longer.

Interest rate risk premium
The rate premium above the rate on the least risky or "prime" loan.

Jumbo mortgage
A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac

Late fees
Fees that lenders are entitled to collect from borrowers who don't pay within the grace period. Most mortgage notes offer borrowers a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16th or later.

Late payment
A payment received after the grace period stipulated in the note. Most mortgage grace periods are 10 or 15 days.

Lead-Generation site
A mortgage web site designed to provide leads (potential customers) to lenders. Where a referral site provides information about lenders to consumers, with consumers contacting the lenders, a lead-generation site provides information about the consumers to the lenders, and the lenders contact the consumers.

Lease-to-own purchase
A transaction in which a hopeful home buyer leases a home with an option to buy it within a specified period.

The lender’s right to claim the borrower’s property in the event the borrower defaults.

Loan amount
The amount the borrower promises to repay, as set forth in the mortgage contract.

Loan officer
Employees of lenders or mortgage brokers who find borrowers, sell and counsel them, and take applications.

Loan provider
A lender or a mortgage broker.

Loan-to-value ratio
The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV. The LTV and down payment are different ways of expressing the same set of facts.

An option exercised by the borrower, at the time of the loan application or later, to "lock in" the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.

Lock commitment letter
A written statement from a lender verifying that the price and other terms of a loan have been locked. Borrowers who lock through a mortgage broker should always demand to see the lock commitment letter.

Lock jumper
A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate.

Lock period
The number of days for which any lock or float-down holds. Ordinarily, the longer the period, the higher the price to the borrower.

Mandatory disclosure
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.

Manufactured housing
A house built entirely in a factory, transported to a site and installed there.

The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.

Market niche
A particular combination of loan, borrower and property characteristics that lenders use in setting prices and underwriting requirements. These characteristics are believed to affect the default risk or cost of the loan.

The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.

Maximum loan amount
The largest loan size permitted on a particular loan program.

Maximum loan to value ratio
The maximum allowable loan-to-value ratio on the selected loan program.

Maximum lock
The longest period for which the lender will lock the rate and points on any program. The most common maximum lock period is 60 days, but on some programs the maximum is 90 days; only a few go beyond 90 days.

Minimum down payment
The minimum allowable ratio of down payment to sale price on any program. Monthly housing expense.

Monthly debt service
Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.

A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan. The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.

Mortgage broker
An independent contractor who offers the loan products of multiple lenders, termed wholesalers. A mortgage broker counsels on the loans available from different wholesalers, takes the application, and usually processes the loan. When the file is complete, but sometimes sooner, the lender underwrites the loan. In contrast to a correspondent, a mortgage broker does not fund a loan.

Mortgage company
A mortgage lender who sells all loans in the secondary market. Mortgage companies may or may not service the loans they originate.

Mortgage formulas
Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR.

Mortgage insurance
Insurance against loss provided to a mortgage lender in the event of borrower default. In most cases, the borrower pays the premiums.

Mortgage insurance premium
The up-front and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of up-front, monthly and annual premiums. The most widely used premium plan is a monthly charge with no upfront premium.

Mortgage lender
The party who disburses funds to the borrower at the closing table. The lender receives the note evidencing the borrower's indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.

Mortgage modification
A change in the terms of a loan, usually the interest rate and/or term, in response to the borrower's inability to make the payments under the existing contract.

Mortgage payment
The monthly payment of interest and principal made by the borrower.

Mortgage price
The interest rate, points and fees paid to the lender and/or mortgage broker.

Mortgage program
A bundle of mortgage characteristics that lenders see fit to distinguish as a distinct instrument.

Mortgage scams
Deceptive and exploitative schemes by lenders, brokers, home sellers and sometimes even borrowers.

Negative amortization
A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called "deferred interest."

Negative amortization cap
The maximum amount of negative amortization permitted on an ARM, usually expressed as a percentage of the original loan amount (e.g., 110%). Reaching the cap triggers an automatic increase in the payment, usually to the fully amortizing payment level, overriding any payment increase cap.

Negative Homeowners Equity
The condition of owing more on the house than the house is worth.

Negative points
Points paid by a lender for a loan with a rate above the rate on a zero point loan.

No-cost mortgage
A mortgage on which all settlement costs except per diem interest, escrows, homeowners insurance and transfer taxes are paid by the lender and/or the home seller.

Non-conforming mortgage
A mortgage that does not meet the purchase requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.

Non-Permanent resident alien
A non-citizen without a green card who is employed in the US. As distinct from a permanent resident alien, who has a green card and who lenders do not distinguish from US citizens. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than US citizens.

No asset loan
A documentation requirement where the applicant's assets are not disclosed.

No income loan
A documentation requirement where the applicant's income is not disclosed.

Non-warrantable condo
A condominium that does not meet lender requirements.

No-Surprise adjustable rate mortgage
An ARM with a preset graduated payment combined with variable term.

Nominal interest rate
A quoted interest rate that is not adjusted for either intra-year compounding, or for inflation.

No ratio loan
A documentation requirement where the applicant's income is disclosed and verified but not used in qualifying the borrower.

A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.

Option ARM
An adjustable rate mortgage with flexible payment options, monthly interest rate adjustments, and very low minimum payments in the early years. They carry a risk of very large payments in later years.

Option fee
An upfront fee paid by the buyer under a lease-to-own purchase, usually 1% to 5% of the price, which is credited to the purchase price when the option is exercised but is lost if it is not.

Origination fee
An upfront fee charged by some lenders, usually expressed as a percent of the loan amount. It should be added to points in determining the total fees charged by the lender that are expressed as a percent of the loan amount. Unlike points, however, an origination fee does not vary with the interest rate.

The difference between the price posted to its loan officers by a lender or mortgage broker, and the price charged the borrower.

Partial prepayment
Making a payment larger than the scheduled payment as a way of paying off the loan earlier.

Paydown magic
Belief that there is a special way to pay down the balance of a home mortgage faster, if you know the secret.

Payment adjustment interval
The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.

Payment increase cap
The maximum percentage increase in the payment on an ARM at a payment adjustment date. A 7.5% cap is common.

Payment decrease cap
The maximum percentage decrease in the payment on an ARM at a payment adjustment date.

Payment period
The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month, but on some it is biweekly.

Payment rate
The interest rate used to calculate the mortgage payment, which is usually but not necessarily the interest rate.

Payoff month
The month in which the loan balance is paid down to zero.

Per diem interest
Interest from the day of closing to the first day of the following month.

Permanent buydown
Paying points as a way of reducing the interest rate. Pick a Payment ARM

Piggyback mortgage
A combination of a first mortgage for 80% of property value, and a second for 5%, 10%, 15%, or 20% of value.

Pipeline risk
The lender's risk that between the time a lock commitment is given to the borrower and the time the loan is closed, interest rates will rise and the lender will take a loss on selling the loan.

Shorthand for principal, interest, taxes and insurance, which are the components of the monthly housing expense.

Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA.

An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount.. It is common today for lenders to offer a wide range of rate/point combinations.

Portable mortgage
A mortgage that can be moved from one property to another. These were introduced in the US by E*TRADE Mortgage in 2003.

Portfolio lender
A lender that holds the loans it originates in its portfolio rather than selling them, as a temporary lender does.

Posted prices
The mortgage prices delivered by lenders to loan officers and mortgage brokers, as opposed to the final prices paid by borrowers.

A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property. It is designed to make it easier to shop for a house.

Predatory lending
A variety of unsavory lender practices designed to take advantage of unwary borrowers.

A payment made by the borrower over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is a "prepayment in full"; otherwise, it is a "partial prepayment."

Prepayment penalty
A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest.

Pricing Notch Point (PNP)
A loan amount at which any increase will increase the interest rate, points or mortgage insurance premium.

Primary residence
The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented

The portion of the monthly payment that is used to reduce the loan balance.

Principal limit
The present value of a house, given the elderly owner's right to live there until death or voluntary move-out, under the FHA reverse mortgage program.

Private mortgage insurance
Mortgage insurance provided by private mortgage insurance companies, or PMIs.

Compiling and maintaining the file of information about a mortgage transaction, including the credit report, appraisal, verification of employment and assets, and so on.

The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan.

Qualification rate
The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in this calculation may or may not be the initial rate on the mortgage.

Qualification ratios
Requirements stipulated by the lender that the ratio of housing expense to borrower income, and housing expense plus other debt service to borrower income, cannot exceed specified maximums.

Qualification requirements
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on.

Rate caps
Limitations on the size of rate adjustments on an ARM .

Rate/point breakeven
The period you must retain a mortgage in order for it to be profitable to pay points to reduce the rate.

Rate/point options
All the combinations of interest rate and points that are offered on a particular loan program.

Rate protection
Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes. This protection can take the form of a "lock" where the rate and points are frozen at their initial levels until the loan closes; or a "float-down" where the rates and points cannot rise from their initial levels but they can decline if market rates decline. In either case, the protection only runs for a specified period. If the loan is not closed within that period, the protection expires and the borrower will either have to accept the terms quoted by the lender on new loans at that time, or start the shopping process anew.

Rate sheets
Tables of interest rates and points that lenders distribute daily to their loan officer employees or mortgage brokers.

Recast payment
Raising the mortgage payment to the fully amortizing payment. Periodic recasts are sometimes used on ARMs in lieu of or in addition to negative amortization caps.

Referral fees
Payments made by service providers to other parties as quid pro quo for referring customers.

Referral site
A mortgage web site that introduces potential borrowers to participating lenders, in some cases to multiple hundreds of them. The principal lure to the consumer is information on generic prices posted by the lenders.

Paying off an old loan while simultaneously taking a new one. This may be done to reduce borrowing costs under conditions where the borrower can obtain a new loan at an interest rate below the rate on the existing loan. It may be done to raise cash, as an alternative to a home equity loan. Or it may be done to reduce the monthly payment.

Rent premium
An increment above the rent paid on a lease-to-own home purchase, which is credited to the purchase price if the purchase option is exercised, but which is lost if the option is not exercised.

Required cash
The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid up-front, and other settlement charges associated with the transaction such as title insurance, taxes, etc. The total required cash is shown on the Good Faith Estimate of Settlement that every borrower receives.

Retail lender
A lender who offers mortgage loans directly to the public. As distinct from a wholesale lender who operates through mortgage brokers and correspondents.

Reverse mortgage
A loan to an elderly home owner on which the balance rises over time, and which is not repaid until the owner dies, sells the house, or moves out permanently.

Right of rescission
The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal at no cost to themselves within 3 days of closing.

Scenario analysis
Determining how the interest rate and payment on an ARM will change in response to specified future changes in market interest rates, called "scenarios".

Scheduled mortgage payment
The amount the borrower is obliged to pay each period, including interest, principal, and mortgage insurance, under the terms of the mortgage contract.

Second mortgage
A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Secure option ARM
An option ARM on which the initial rate holds for 5 years rather than one month.

Secondary markets
Markets in which mortgages or mortgage-backed securities are bought and sold.

Seller contribution
A contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction.

Seller financing
Provision of a mortgage by the seller of a house, often a second mortgage, as a condition of the sale.

Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, assuring payments of taxes and insurance, and pursuing delinquent accounts.

Servicing agent
The party who services a loan, who may or may not be the lender who originated it.

Servicing release premium
A payment made by the purchaser of a mortgage to the seller for the release of the servicing on the mortgage. It has no direct relevance to borrowers.

Servicing transfer
When one servicing agent is replaced by another.

Settlement costs
Costs that the borrower must pay at the time of closing, in addition to the down payment.

Shared appreciation mortgage
A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral.

Shopping site
A type of multi-lender web site that offers borrowers the capacity to shop among multiple competing lenders.

Short sale
An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender. It is an alternative to foreclosure, or a deed in lieu of foreclosure.

Simple interest mortgage
A mortgage on which interest is calculated daily based on the balance at the time of the last payment. The daily interest charge within the month is constant -- interest is not charged on the interest charges of prior days.

Simple interest biweekly mortgage
A biweekly mortgage on which the biweekly payment is applied to the balance every two weeks, rather than held in an account as on a conventional biweekly.

Single file mortgage insurance
A type of mortgage insurance on which the lender pays the premium and prices it in the interest rate.

Single-lender web site
A web site of an individual lender or mortgage broker who wants users to select a loan from them. They are easy to identify because the name of the lender or broker will be prominently displayed on the screens. Single-lender sites account for the majority of all mortgage web sites.

Stated assets
A documentation requirement where the borrower discloses her assets but they are not verified by the lender.

Stated income
A documentation requirement where the lender verifies the source of the income but not the amount.

Streamlined refinancing
Refinancing that omits some of the standard risk control measures, and is therefore quicker and less costly.

Subordinate financing
A second mortgage on the property which is not paid off when a new loan is taken out. The second mortgage lender must allow subordination of the second to the new first mortgage.

Subordination policy
The policy of a second mortgage lender for allowing a borrower to refinance the first mortgage while leaving the second in place.

Swing loan
Same as Bridge loan.

Tax service fee
A fee charged by some lenders at closing to cover the cost of paying taxes on the borrower's property when they come due, or (if the borrower is paying the taxes), verifying that the payment has been made.

Temporary buydown
A reduction in the mortgage payment in the early years of the loan in exchange for an upfront cash payment provided by the home buyer, the seller, or both.

Temporary lender
A lender that sells the loans it originates, as opposed to a portfolio lender who holds them.

The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity.

Title insurance
Insurance against loss arising from problems connected to the title to property.

Total housing expense
Housing expense plus Monthly debt service.

Total expense ratio
The ratio of Total housing expense to borrower income.

Total interest payments
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money.

Total expense ratio
The ratio of housing expense plus current debt service payments to borrower income, which is used (along with the housing expense ratio and other factors) in qualifying borrowers.

Truth in Lending (TIL)
The Federal law that specifies the information that must be provided to borrowers on different types of loans. Also, the form used to disclose this information.

The process of examining all the data about a borrower's property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.

Underwriting requirements
The standards imposed by lenders in determining whether a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower’s creditworthiness.

Upfront Mortgage Broker (UMB)
A mortgage broker who charges a set fee for services provided, established in writing at the outset of the transaction, and acts as the borrower's agent in shopping for the best deal.

Upfront Mortgage Lender
A lender offering loans on the internet who provides mortgage shoppers with the information they need to make an informed decision before applying for a mortgage; and guarantees them fair treatment during the period after they apply through to closing.

VA mortgage
A mortgage with no down payment requirement, available only to ex-servicemen and women as well as those on active duty, on which the lender is insured against loss by the Veterans Administration.

Waive escrows
Authorization by the lender for the borrower to pay taxes and insurance directly. This is in contrast to the standard procedure where the lender adds a charge to the monthly mortgage payment that is deposited in an escrow account, from which the lender pays the borrower’s taxes and insurance when they are due. On some loans lenders will not waive escrows, and on loans where waiver is permitted lenders are likely either to charge for it in the form of a small increase in points, or restrict it to borrowers making a large down payment.

Warehouse lender
A firm that lends to temporary lenders against the collateral of closed mortgage loans prior to the sale of the loans in the secondary market. Warehouse lenders can call the loans if the loans "in the warehouse" drop in value.

Warrantable condos
A condominium project with features that lenders view as protections against hazards that would threaten the value of condo units. These features include the project being completed with most units sold rather than rented, no one party owning more than 10% of them, adequate insurance coverage of common structures, and an ownership association independent of the developer.

Wholesale lender
A lender who provides loans through mortgage brokers or correspondents. The mortgage broker or correspondent initiates the transaction, takes the borrower's application, and processes the loan. As distinct from a Retail lender.

Wholesale mortgage prices
The interest rate and points quoted by wholesale lenders to mortgage brokers and correspondent lenders.

Workout assumption
The assumption of a mortgage, with permission of the lender, from a borrower unable to continue making the payments.

Wrap-around mortgage
A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage. Wrap-around mortgages arise when the current market rate is above the rate on the existing mortgage, and home sellers are frequently the lender. A due-on-sale clause prevents a wrap-around mortgage in connection with sale of a property except by violating the clause.

Yield-Spread premium.
Same as Negative points.

Yield-Spread premium abuse
The practice by mortgage brokers of pocketing a rebate from the lender for delivering a high-rate loan, without the knowledge of the borrower.

Yield Curve
A graph that shows, at any given time, how the yield varies with the period to maturity. Usually, the curve slopes upwards but occasionally it slopes down or is flat. A flat yield curve means that yields on long-term bonds are not much higher than those on short-term notes.

3/2 Down payment
Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2% of the down payment will only have to provide a 3% down payment from their own funds.

12 MTA
An interest rate index that is used on some ARMs. It is the average of the most recent 12 monthly values of the Treasury One-Year Constant Maturity series.

3.95% ARM
A monthly ARM on which the initial rate is 3.95%.

100% loan
A loan with no down payment. The loan amount equals the property value.

125% loan
A loan for 125% of property value.

30-Year Mortgage A mortgage with a term of 30 years.


Fairway Independent Mortgage Corporation NMLS Entity ID # 2289
380 West Broadway Suite 101, South Boston, MA  02127
Direct:  (617) 456-1700
Cell:  (617) 407-0001
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