Amortization:
the period of time during which payment must be made.
Appraisal:
the estimate of the value of the property usually
determined by sales comparables.
ARM(Adjustable Rate Mortgage): a mortgage
tied to an index that adjusts based on changes in the
economy.
Cap: a
ceiling usually found on ARM loans expressed as per a
period or for the life of the loan.
Combined Loan To
Value(CLTV) Ratio: the amount
of the loans (first and second) as compared to the
appraised value of the property.
Deed of Trust:
another term for a mortgage. Can also be another
instrument used in some states in lieu of a mortgage.
Legal title to the property is vested in one or more
trustees to secure the repayment of the loan.
Deferred Interest
Loan: another term used for a negative
amortization loan. Other terms include Option ARM and
Flexible Payment Loans. This loan allows you the choice
every month of what they want to pay. Your have the
choice of 3 different payment options each month. The
payment options are; 1) a minimum pay rate, 2) an
interest only payment and 3) a principle and interest
payment. Borrowers have these 3 choices every month.
Borrowers decide what to pay based on their budget and
cash flow.
First Trust Deed:
a deed or mortgage that has priority as a lien over all
other deeds and mortgages; in case of foreclosure the
first trust deed will be satisfied first.
Flexible Payment
Loan: another term used for a negative
amortization loan. Other terms include Option ARM and
Deferred Interest Loans. This loan allows you the choice
every month of what they want to pay. Your have the
choice of 3 different payment options each month. The
payment options are; 1) a minimum pay rate, 2) an
interest only payment and 3) a principle and interest
payment. Borrowers have these 3 choices every month.
Borrowers decide what to pay based on their budget and
cash flow.
Home Equity:
a second mortgage loan that allows a homeowner to access
the accumulated equity in the home. The loan may be set
up as a traditional second mortgage or as a line of
credit. The traditional loan provides a lump sum when
the loan is closed, whereas the line of credit gives the
borrower the right to draw cash over time as needed.
Index: an
indicator used to measure inflation, which is a basis
for the ARM loan. There are various sources of indexes,
including treasury securities, treasury bills, 11th
district cost of funds and the index of the Federal Home
Loan Bank Board.
Interest Only:
payments received that are only applied to the accrued
interest on the loan, therefore there is no principle
reduction.
Interest Rate:
the note rate charged on the loan. For an ARM loan, the
interest rate is the index plus the margin.
Interest Rate Cap:
the maximum amount of interest that can be charged on an
ARM loan. Can be expressed in terms of annual or
lifetime figures.
Life Cap:
contractual limitation on the maximum interest rate that
can be applied to an adjustable-rate mortgage during the
term of the loan.
Loan to Value
(LTV) Ratio: the amount of the loan as compared
to the appraised value of the property.
Lock: the
fixing of the interest rate at a certain level during
the loan application process. It is usually done for a
certain period of time such as 30, 45 or 60 days.
Margin: a
constant amount, expressed as percentage rate, added to
the value of the index for the purpose of adjusting the
interest rate on an ARM loan.
Negative
Amortization: an interest payment shortfall,
which is added back onto the principle balance. Also see
Deferred Interest Loan, Flexible Payment Loan and Option
ARM.
Option ARM:
another term used for a negative amortization loan.
Other terms include Deferred Interest and Flexible
Payment Loans. This loan allows you the choice every
month of what they want to pay. Your have the choice of
3 different payment options each month. The payment
options are; 1) a minimum pay rate, 2) an interest only
payment and 3) a principle and interest payment.
Borrowers have these 3 choices every month. Borrowers
decide what to pay based on their budget and cash flow.
P & I:
Principle and Interest.
PITI:
Principle, Interest, Taxes (property) and Insurance.
Prepayment
Penalty: a fee paid by borrowers for the
privilege of retiring a loan early. The penalty is
usually set at a specific percentage of the outstanding
loan balance and usually is for the first 3 years of the
loan. Some loans do have declining prepayment penalties;
this is where the penalty amount decreases each year
into the loan.
Refinance:
substitution of a new loan(s) for an old loan(s).
Second Trust Deed:
is a subordinate lien, created by a mortgage loan, over
the amount of a first mortgage. Second mortgages are
used at purchase to reduce the amount of a cash down
payment or in refinancing to raise cash for any purpose.
