Adjustable Rate Mortgage (ARM)
also known as a Variable Rate Mortgage (VRM), has built-in periodic rate adjustments that can increase or decrease your monthly payment.
Amortization
your loan payoff schedule, including principal and interest, based on regular installment payments. Loans are typically amortized over 30 years.
Annual Percentage Rate (APR)
the true cost of credit, expressed as a yearly rate. It takes into account the interest rate, plus other charges like points, prepaid interest, etc.
Application Fee
a charge, often non-refundable, that covers the lender's cost of processing your loan application.
Appraised Value
estimated market value of the property as determined by a professional appraiser.
Assumability
the ability to transfer an existing mortgage and its specified terms from the owner to the buyer. Assumability of fixed and adjustable rate mortgages varies from lender to lender.
Cap
a limit (expressed as a percentage) on the amount of interest an Adjustable Rate Mortgage can increase or decrease during each adjustment period (periodic cap), or over the life of the loan (payment cap). It can also refer to the amount a payment can go up (payment cap) at each adjustment interval.
Deed of Trust
the legal instrument signed by the borrower to secure a real estate loan.
Demand
written instructions by a beneficiary under a deed of trust stating and demanding the amount necessary for issuance of a reconveyance.
Disclosure
information about the loan that the lender is required by law to give to the borrower.
Down Payment
the cash portion of the purchase price paid from the buyer's own funds.
Equity
the difference between the price at which the home could be sold, and the amount of the balance due on the 1st mortgage and any other liens on the property.
Escrow
a neutral third party appointed to act as custodian for all documents and funds until all requirements are met by the buyer and seller.
First Trust Deed
The mortgage that has first priority over any other lienholder in the event of a default on the loan or a foreclosure on the property.
Fixed Rate Loan
a loan where the interest rate is fixed at the time of the loan for the term of the loan.
Impound Account
an interest-earning savings account held by the lender to accumulate a portion of the borrower's monthly payment. Funds accumulated are used for future payment of taxes, insurance, assessments and fees.
Index
a measure of the general movement of interest rates a lender uses to calculate how much to change their rate on variable rate loans.
Initial Rate
an interest rate for the first 6 to 12 months of an adjustable rate loan. It is usually lower than the fully indexed rate.
Indexed Rate
the rate that takes effect after the initial discounted rate period expires on an Adjustable Rate Mortgage. The indexed rate is calculated by adding the current value of the index to the margin or spread.
Legal Description
description of the property listed in the county records.
Margin or Spread
an amount, expressed as a percentage, added to the index to determine the interest rate on an Adjustable rate loan.
Mortgage
a lien held by the lender against the borrower's real property in return for funds borrowed to purchase that property.
Negative Amortization
a situation that may occur when an Adjustable Rate Mortgage has a payment cap. Since this cap limits how much your payment can increase during an adjustment, your adjusted payment may not be enough to cover the total amount of interest due. The unpaid interest would be added to your unpaid principal loan balance.
Points
each point is a pre-paid finance charge equal to 1% of the principal amount of the loan, payable at the close of escrow. Example: 2 points charged on a $100,000 loan = $2,000.
Pre-Paid Interest
the interest that accrues on the mortgage from the date of settlement to the beginning of the period covered by the first installment payment.
Principal
the amount of the loan, excluding interest.
Private Mortgage Insurance (PMI)
insurance on a real estate loan to protect the lender from loss if the borrower defaults on the mortgage and the lender forecloses on the property.
Reconveyance
an instrument used to transfer title from a trustee to the equitable owner of the real estate, when title is held as collateral security for debt. Most commonly used upon payment in full of a trust deed.
Refinance
negotiation of a new loan to pay off an existing loan. First mortgages are usually refinanced to take advantage of a lower interest rate, switch from one loan type to another (ARM to fixed rate), or to pull out cash from equity that has accrued.
Residential Mortgage Credit Report
a detailed account of credit, employment, residence, and public record from three national data banks.
Secondary Mortgage Market
the buying and selling of first or second mortgages on deeds of trust by banks, insurance companies, government agencies, and other mortgagees (like Fannie Mae or Freddie Mac).
Settlement Costs (Closing Costs)
costs incurred by the seller and the buyer in transferring title to the property from one to the other—or incurred by refinancing. They typically include such things as property taxes, insurance, brokers fees, escrow fees, title insurance premium, deed recording fee, etc. Escrow instructions specify which portion of the fees are to be paid by the buyer or seller.
Tax Service
outside service that track your property taxes to verify they have been paid.
Term
the number of years scheduled for a loan to be paid off. Most fixed rate 1st mortgages have 15 or 30 year terms.
Title Insurance
an insurance policy protecting the individuals claiming an interest in the property (such as the borrower and the lender) against loss resulting from any encumbrances not identified by the Title Company in their Preliminary Title Report.
