Adjustable Rate Mortgage (ARM) A mortgage that changes interest rate periodically based upon the changes in a specified index.

Adjustment Date The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Annual Percentage Rate (APR) The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, loan origination fee  and other specific fees.

Appraisal A written analysis of the estimated value of a property prepared by a qualified appraiser.

Balloon (Payment) Mortgage Usually a short-term loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Cap A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Cash-out Refinance A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property.  Closing costs normally include an origination fee, discount points, an attorney fees, taxes, title insurance, survey, and any other costs assessed at settlement.

Conventional Loan A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA).

Credit Report A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Discount Points Prepaid finance charge assessed at closing by the lender, typically used to buydown the interest rate.  Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Down Payment The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Earnest Money A deposit given by a buyer to a seller as part of the the purchase price to bind a transaction or assure payment.

Equity A homeowner's financial interest in a property.  Equity is the difference between the fair market value of the property and the amount still owed on the property.

Federal Home Loan Mortgage Corporation (Freddie Mac) Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal National Mortgage Association (Fannie Mae) Also known as Fannie Mae.  A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.

FHA Mortgage A mortgage that is insured by the Federal Housing Administration (FHA).  Also known as a government mortgage.

Fixed-rate Mortgage (FRM) A mortgage in which the interest rate does not change during the entired term of the loan.

Good Faith Estimate An estimate of charges, which a borrower is likely to incur in connection with a settlement.

Government National Mortgage Association (GNMA) Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Index A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied.  Some commonly used include the 1 Year Treasury Bill, 6 month LIBOR, and the 11th District Cost of Funds (COFI).

Interest Only Loan A loan is considered "interest only" if the monthly payment does not include any repayment of principal - the payment covers only the interest and the actual loan balance remains unchanged.

Jumbo Loan A loan, which is larger (more than $417,000) than the limits set by Fannie Mae and Freddie Mac.  Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lifetime Cap A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan to Value Ratio (LTV) The ratio of the amount of your loan to the appraised value of the home.  The LTV will affect programs available to the borrower and generally, the lower the LTV, the more favorable the terms of the programs offered by lenders.

Margin Margin the number of percentage points added to the index value to calculate the ARM interest rate at each adjustment period.

Mortgage Insurance (MI) Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default.  Usually required for loans with an LTV of 80.01% or higher.

Origination Fee A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan.

PITI Principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

Power of Attorney A legal document authorizing one person to act on behalf of another.

Prepaids Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, hazard insurance, private mortgage insurance, and special assessments.

Rate Cap A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

Refinancing The process of paying off one loan with the proceeds from a new loan using the same property as security.

Survey A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Title A document that gives evidence of an individual's ownership of property.

VA Loan A long-term, low or no-down payment loan guaranteed by the Department of Veterans Affairs.  Restricted to individuals qualified by military service or other entitlements.

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