Confused by the strange language of lending? Here is some helpful information:
Adjustment Period
The time between changes in your interest rate and monthly payment on an adjustable rate mortgage (ARM)
Appraisal
Analysis of value performed by a certified appraiser. Accurate determination of market value or useful value. Generally the value used by lenders and insurance companies.
ARM
Adjustable Rate Mortgage - The interest rate on this mortgage rises and falls with changes in certain published indexes such as the Prime Rate, treasury notes, etc. There is usually a cap as to how high the rates can rise over the life of the loan.
APR
Annual Percentage Rate - The cost of your loan expressed as a yearly rate. For mortgages, it includes interest, points, origination fees, attorney fees, mortgage insurance or any other charge that is expressed as a fee.
Assessed Value
Value that county or city tax assessors place on a piece of property or buildings. Usually not the same as the actual market or appraised value of the property. The assessed value is multiplied by the tax rate to determine the tax liability.
Caps
Safeguards that limit how much your ARM interest rate and payments can go up or down at any one time and over the life of the loan.
Closing
Can also be called settlement or closing escrow. Completes the real estate purchase transaction and is usually handled by an attorney or representative.
Closing Costs
Money paid by the borrower, seller, or lender on the borrowers behalf when the loan is closed.
Conventional Financing
Mortgage loans made without government backing from the Veterans Administration (VA) or the Federal Housing Administration (FHA).
Escrow Account
An account set aside by your mortgage servicer to pay for annual expenses such as insurance and property taxes. Part of your monthly mortgage payment goes into this account so you don't have to make one lump payment when these expenses are due.
Escrow Waiver
Can be requested by the borrower, instructing the mortgage servicer to not establish an escrow account. Annual payments for taxes and insurance are paid by the borrower directly to the billing agent for these items. Escrow waiver requests may be limited based upon the loan to value of the mortgage.
Fixed Rate Loan
A loan where the interest rate remains the same for the term of the loan.
Index
A published rate such as One-Year Treasury Rate and the Prime Rate, that is used by lenders to calculate the interest adjustments on ARM loans. This index can vary from lender to lender and will vary depending on the loan program.
Loan-to-Value Ratio (LTV)
The percent of the appraised value of the property to the amount loaned. For example: a home is appraised at $100,000 and you want to borrow $80,000, that is an 80% loan-to-value. Lenders often have a maximum loan-to-value requirement depending on the loan.
Margin (spread)
The amount added to an index to determine the interest rate on an ARM.
Origination Fee
The amount that a lender charges to initiate and process a mortgage loan.
Point
An upfront fee to secure the loan interest rate. One point is equal to one percent of the loan amount (one point on $100,000 loan would be $1,000). Many lenders allow customers the option of paying additional points in exchange for a lower interest rate on the loan.
Refinance
Take out a new loan to pay off an existing loan. Refinancing usually involves new closing costs.
Rate Lock-In
A guarantee that the rate in effect when you make the lock-in will be the final rate when you close the loan. The rate lock-in is good for a specific time, typically 45 to 60 days from the date of the lock-in.
Survey
A measurement and mapping of the exact location of your land and improvements. It is often called a plat. A licensed surveyor provides this service.
Term
The number of years it will take to pay off your loan by making regular payments.
Title Insurance
Insurance against loss resulting from any problems with the title (deed) to the property you are financing.
Title Search
Verifies that the title to the property you are buying is clear of any claims from other persons.
Underwriting
Guidelines the lender uses to determine if a borrower qualifies for a loan. Different loan programs have different guidelines for qualifying.