GLOSSARY

M-P
 

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

The date on which the principal balance of a loan becomes due and payable.

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

A legal document that pledges a property to the lender as security for payment of a debt.

A company that originates mortgages exclusively for resale in the secondary mortgage market.

A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

The amount paid by a mortgagor for mortgage insurance.

A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

The borrower in a mortgage agreement.

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

The value of all of a person's assets, including cash.

An asset that cannot easily be converted into cash.

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

A property purchase transaction in which the party selling the property provides all or part of the financing.

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

A limit on the amount that payments can increase or decrease during any one adjustment period.

A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

A fee that may be charged to a borrower who pays off a loan before it is due.

The process of determining how much money you will be eligible to borrow before you apply for a loan.

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

The outstanding balance of principal on a mortgage not including interest or any other charges.

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.

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Have more questions? Contact us

We are here to assist. Contact us by phone, email or via our social media channels.