Glossary of Financing Terms
Adjustable Rate Mortgage:
Also known as variable rate. These mortgages are generally long term commitments for money but interest rates may fluctuate up or down on certain dates during the life of the loan
A loan which is paid off in equal installments during its term.
Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.
Cash payments made at closing that allows the borrower to take advantage of lower interest rates for a specific period.
Capital Gains Tax:
The taxable profit derived from the sate of a capital asset. The capital gain is the difference between the sale price and the basis of the property, after making appropriate adjustments for closing costs, fixing up expenses, capital improvements, allowable depreciation, etc.
Expenses incurred in the closing of a real estate or mortgage transaction. Purchaser's expenses normally include: cost of title examination, premiums for title policies, survey, attorney fee, lender's service fees, and recording charges. In addition, the purchaser may have to place in escrow a sum of money to cover accrued real estate taxes and insurance.
A loan neither insured by the FHA nor guaranteed by the VA.
The difference between the market value of property and the homeowner's indebtedness (mortgage).
That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due, known as impounds in some states.
The trading of an equity in a piece of property for the equity in another.
A lender's agreement to make a loan to a specific borrower on a specific property. A FHA or PMI agreement to insure a loan on a specific property, with a designated purchaser.
Graduated Equity or Rapid Amortization:
Fixed rates long term mortgage (25-40 years). The payments, however, are increased annually in negotiated amounts. The additional dollars are allocated to the outstanding principal, thereby paving the mortgage off earlier than planned (12-15 years).
The holder of a mortgage or the permanent tender for whom the mortgage banker services the loan. Any person or institution that invests in mortgages.
Lease Purchase Agreement:
Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.
A written promise by a lender to make a loan and under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.
Loan to Value Ratio:
The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value (selling price). On a $100,000 home, with a mortgage loan principal of $80,000, the loan to value ratio is 80%.
"Magic"a vehicle to provide a mortgage to borrowers with less than 20% available as a down payment. Mortgage Guarantee Insurance Corporation sells an insurance policy to the lender, paid for by the borrower, to protect the lender in the event of default, M.G.I.C. allows the buyer to put down as little as 10%.
Mortgage/Deed of Trust:
Pledge of real property to secure a debt by a written instrument given by the mortgagor. Should be recorded in the County Recorder's Office.
The lender of money or the receiver of the mortgage document.
A written promise to pay a certain amount of money.
A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
Principal Interest, Taxes, Insurance. Formula used in calculations of amount the purchaser is qualified to borrow. Generally this figure is 28%-30% of gross monthly income.
One percent of loan amount.
A fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.
The right given to a purchaser to pay all or part of a debt prior to its maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.
Privately Insured Mortgage:
A conventional mortgage loan on which a private mortgage insurance company protects the lender against loss.
Rent with Option:
A contract which gives one the right to /ease property at a certain sum with the option to purchase at a future date.
Second Mortgage/Second Trust:
Junior Mortgage or Junior Lien; an additional loan imposed on property with a "first" mortgage.
A loan with periodic payments of interest only; the principal sum due in one lump sum upon maturity.
Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property; the owners and others.
An insurance policy which protects the insured ( purchaser or lender) against loss arising from defects in title.