The right of the mortgagee
(lender) to demand the immediate repayment of the mortgage
loan balance upon the default of the mortgagor (borrower), or
by using the right vested in the Due-on-Sale Clause .
Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted
periodically based on a pre-selected index. Also known as a
renegotiable rate mortgage, variable rate mortgage or a
Canadian rollover mortgage.
On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly payment, typically
one, three or five years, depending on the index.
Means loan payment by equal periodic payment
calculated to pay off the debt at the end of a fixed period,
including accrued interest on the outstanding balance.
Annual Percentage Rate (A.P.R.)
Is a interest rate reflecting the cost of a mortgage as a
yearly rate. This rate is likely to be higher than the stated
note rate or advertised rate on the mortgage, because it takes
into account point and other credit cost. the APR allows home
buyers to compare different types of mortgages based on the
annual cost for each loan.
An estimate of the value of property, made by a qualified
professional called an "appraiser".
Assessment A local tax levied against a
property for a specific purpose, such as a sewer or street
The agreement between the buyer and seller where the buyer
takes over the payments of an existing mortgage from the
seller. Assuming a loan can usually save the buyer money since
this is an existing mortgage debt, unlike a new mortgage where
closing cost and new, probably higher, market-rate interest
charges will apply.
Usually a short-term fixed-rate 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 .
A mortgage covering at least two pieces of real estate
as security for the same mortgage .
One who applies for and receives a loan in the form of a
mortgage with the intention of repaying the loan in full.
An individual in the business of assisting in arranging funding
or negotiating contracts for a client buy who does not loan the
money himself. Brokers usually charge a fee or receive a
commission for their services .
When the lender and/or the home builder subsidized the mortgage
by lowering the interest rate during the first few years of the
loan. While the payments are initially low, they will increase
when the subsidy expires.
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage
payment, maintenance, utilities, etc.)
Cap (Interest Rate)
Consumer safeguards which limit the amount the interest rate on
an adjustable rate mortgage may change per year and/or the life
of the loan .
Consumer safeguards which limit the amount monthly payments on
an adjustable rate mortgage may change.
Certificate of Eligibility
The document given to qualified veterans which entitles them to
VA guaranteed loans for homes, business, and mobile homes.
certificates of eligibility may be obtained by sending DD-214
(Separation Paper) to the local VA office with VA form 1880
(request for Certificate of Eligibility).
Certificate of Reasonable Value
(CRV) An appraisal issued by the Veterans Administration showing
the property's current market value.
Certificate of Veteran Status
The document given to veterans or reservists who have served 90
days of continuous active duty (including training time) It may
be obtained by sending DD 214 to the local VA office with form
26-8261a (request for certificate of veteran status. This
document enables veterans to obtain lower down payments on
certain FHA insured loans).
The meeting between the buyer, seller and lender or their agents
where the property and funds legally change hands. Also called
settlement. closing costs usually include an origination fee,
discount points, appraisal fee, title search and insurance,
survey, taxes, deed recording fee, credit report charge and
other costs assessed at settlement. The cost of closing usually
are about 3 percent to 6 percent of the mortgage amount.
A promise by a lender to make a loan on specific terms
or conditions to a borrower or builder. A promise by an investor
to purchase mortgages from a lender with specific terms or
conditions. an agreement, often in writing, between a lender and
a borrower to loan money at a future date subject to the
completion of paperwork or compliance with stated conditions.
A short term interim loan to pay for the construction of
buildings or homes. These are usually designed to provide
periodic disbursements to the builder as he progresses.
Contract Sale or Deed
A contract between purchaser and a seller of real estate to
convey title after certain conditions have been met. It is a
form of installment sale .
A mortgage not insured by FHA or guaranteed by the VA.
A report documenting the credit history and current status of a
borrower's credit standing.
The ratio, expressed as a percentage, which results when a
borrower's monthly payment obligation on long-term debts is
divided by his or her gross monthly income. See housing
Deed of Trust
In many states, this document is used in place of a mortgage to
secure the payment of a note .
Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mort gage .
When a mortgage is written with a monthly payment that is less
than required to satisfy the note rate, the unpaid interest is
deferred by adding it to the loan balance. See Negative
Failure to make payments on time. this can lead to foreclosure .
Department of Veterans Affairs
(VA) An independent agency of the federal government which
guarantees long-term, low-or no-down payment mortgages to
eligible veterans .
Money paid to make up the difference between the purchase price
and the mortgage amount.
A provision in a mortgage or deed of trust that allows the
lender to demand immediate payment of the balance of the
mortgage if the mortgage holder sells the home
Money given by a buyer to a seller as part of the purchase price
to bind a transaction or assure payment.
The VA home loan benefit is called entitlement. Entitlement for
a VA guaranteed home loan. This is also known as eligibility .
Equal Credit Opportunity Act
(ECOA) Federal law requires that lenders and other creditors to
make credit equally available without discrimination based on
race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs .
The difference between the fair market value and current
indebtedness, also referred to as the owner's interest. The
value an owner has in real estate over and above the obligation
against the property.
An account held by the lender into which the home buyer pays
money for tax or insurance payments. Also earnest deposits held
pending loan closing.
see Federal National Mortgage Association
Farmers Home Administration
(FmHA) Provides financing to farmers and other qualified
borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board
(FHLBB) The former name for the regulatory and supervisory
agency for federally chartered savings institutions. Agency is
now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation
(FHLMC) Also called "Freddie Mac", a quasi-governmental agency
that purchases conventional mortgage from insured depository
institutions and HUD-approved mortgage bankers .
Federal Housing Administration
(FHA) A division of the Department of Housing and Urban
Development. Its main activity is the insuring of residential
mortgage loans made by private lenders. FHA also sets standards
for underwriting mortgages .
Federal National Mortgage Association
(FNMA) Also know 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. This institution, which provides funds for one
in seven mortgages, makes mortgage money more available and more
A loan insured by the Federal Housing Administration open to all
qualified home purchasers. While there are limits to the size of
FHA loans ($155,250 as of 1/1/96), they are generous enough to
handle moderately-priced homes almost anywhere in the country.
FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at
closing to insure the loan with FHA. In addition, FHA mortgage
insurance requires an annual fee of up to 0.5 percent of the
current loan amount, paid in monthly installments. The lower the
down payment, the more years the fee must be paid.
The Federal Home Loan Mortgage Corporation provides a secondary
market for savings and loans by purchasing their conventional
loans. Also known as "Freddie Mac."
A promise by FHA to insure a mortgage loam for a specified
property and borrower. A promise from a lender to make a
mortgage loan .
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these
mortgages throughout the term of the mortgage for the original
The Federal National Mortgage Association is a secondary
mortgage institution which is the largest single holder of home
mortgages in the United States. FNMA buys VA, FHA, and
conventional mortgages from primary lenders. Also known as
Foreclosure A legal process by which the lender
or the seller forces a sale of a mortgaged property because the
borrower has not met the terms of the mortgage. Also known as a
repossession of property.
see Federal Home Loan Mortgage Corporation
see Government National Mortgage Association .
National Mortgage Association (
A government-owned corporation which guarantees payment of
interest and principal of mortgage-backed pass through
securities. The corporation is nicknamed Ginnie Mae.
Graduated Payment Mortgage
(GPM) A type of flexible-payment mortgage where the payments
increase for a specified period of time and then level off. This
type of mortgage has negative amortization built into it.
(also Co-Signer, Personal Guarantor) A promise by one party to
pay a debt or perform an obligation contracted by another if the
original party fails to pay or perform according to a contract
A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the
Housing Expenses-to-Income Ratio
(also Debt-to-Income Ratio) The ratio, expressed as a
percentage, which results when a borrower's housing expenses are
divided by his/her gross monthly income. Typical accepted
ranges are a maximum 35% of income should be devoted to
housing. See debt-to-income ratio.
(also Escrowed Funds) That portion of a borrower's monthly
payments held by the lender or servicing agency to pay for
taxes, hazard insurance, mortgage insurance, lease payments, and
other items as they become due. Also known as reserves.
A published interest rate against which lenders measure the
difference between the current interest rate on an adjustable
rate mortgage and that earned by other investments (such as one-
three-, and five-year U.S. Treasury security yields, the monthly
average interest rate on loans closed by savings and loan
institutions, and the monthly average costs-of-funds incurred by
savings and loans), which is then used to adjust the interest
rate on an adjustable mortgage up or down.
A construction loam made during completion of a building or a
project. A permanent loan usually replaces this loan after
A money source for a lender
A loan which is larger (more than $214,600 as of 1/1/97) than
the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by these two agencies, they
usually carry a higher interest rate.
A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
The relationship between the amount of the mortgage loan and the
appraised value of the property expressed as a percentage
The amount a lender adds to the index on an adjustable rate
mortgage to establish the adjusted interest rate.
The highest price that a buyer would pay and the lowest price a
seller would accept on a property. Market value may be different
from the price a property could actually be sold for at a given
MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss
on account of the borrower's default.
Money paid to insure the mortgage when the down payment is less
than 20 percent. See private mortgage insurance, FHA
The borrower or homeowner .
Occurs when your monthly payments are not large enough to pay
all the interest due on the loan. This unpaid interest is added
to the unpaid balance of the loan. the danger of negative
amortization is that the home buyer ends up owing more than the
original amount of the loan.
Net Effective Income
The borrower's gross income minus federal income tax .
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender. Note: The
signed obligation to pay a debt, as a mortgage note.
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered
savings institutions. Formally known as Federal Home Loan
Bank Board .
The fee charged by a lender to prepare loan documents, make
credit checks, inspect and sometimes appraise a property;
usually computed as a percentage of the face value of the loan.
A long term mortgage, usually ten years or more. Also called an
Principal, Interest, Taxes and Insurance. Also called monthly
Pledged account Mortgage
(PAM): Money is placed in a pledged savings account and this
fund plus earned interest is gradually used to reduce mortgage
(loan discount points) Prepaid interest assessed at closing by
the lender. Each point is equal to 1 percent of the loan amount
(e.g., two points on a $100,000 mortgage would cost $2,000) .
Power of Attorney
A legal document authorizing one person to act on behalf of
Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
A privilege in a mortgage permitting the borrower to make
payments in advance of their due date.
Money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily imposed)
in many states .
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as
savings and loan associations, commercial banks, and mortgage
companies. These lenders sometimes sell their mortgages into the
secondary mortgage markets such as to FNMA or GNMA,
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance
(PMI) In the event that you do not have a 20 percent down
payment, lenders will allow a smaller down payment - as low as 5
percent in some cases. With the smaller down payment loans,
however, borrowers are usually required to carry private
mortgage insurance. Private mortgage insurance will usually
require an initial premium payment and may require an additional
monthly fee depending on you loan's structure.
A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National
Association of REALTORSŪ .
The cancellation of a contract. With respect to mortgage
refinancing, the law that gives the homeowner three days to
cancel a contract in some cases once it is signed if the
transaction uses equity in the home as security. Florida Law
allows for a 3 Day Right of Rescission on ANY contract or sale.
Money paid to the lender for recording a home sale with the
local authorities, thereby making it part of the public records.
Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See
adjustable rate mortgage .
Short for the Real Estate Settlement Procedures Act. RESPA is a
federal law that allows consumers to review information on known
or estimated settlement cost once after application and once
prior to or at a settlement. The law requires lenders to furnish
the information after application only.
Reverse Annuity Mortgage
(RAM) A form of mortgage in which the lender makes
periodic payments to the borrower using the borrower's equity in
the home as Satisfaction of Mortgage: The document issued by the
mortgagee when the mortgage loam is paid in full. Also called a
"release of mortgage."
A mortgage made subsequent to another mortgage and subordinate
to the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they
make to obtain more funds to originate more new loans. It
provides liquidity for the lenders. security.
All the steps and operations a lender performs to keep a loan in
good standing, such as collection of payments, payment of taxes,
insurance, property inspections and the like .
see closing/closing costs
Shared Appreciation Mortgage
(SAM) A mortgage in which a borrower receives a below-market
interest rate in return for which the lender (or another
investor such as a family member or other partner) receives a
portion of the future appreciation in the value of the property.
May also apply to mortgage where the borrowers shares the
monthly principal and interest payments with another party in
exchange for part of the appreciation .
Interest which is computed only on the principle balance.
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to know points,
its dimensions, and the location and dimensions of any
Equity created by a purchaser performing work on a property
A document that gives evidence of an individual's ownership of
A policy, usually issued by a title insurance company,
which insures a home buyer against errors in the title search.
The cost of the policy is usually a function of the value of the
property, and is often borne by the purchaser and/or seller.
Policies are also available to protect the lender's interests .
An examination of municipal records to determine the legal
ownership of property. Usually is performed by a title company.
A federal law requiring disclosure of the Annual Percentage Rate
to home buyers shortly after they apply for the loan. Also known
as Regulation Z .
A mortgage in which the borrower receives a below-market
interest rate for a specified number of years (most often seven
or 10), and then receives a new interest rate adjusted (within
certain limits) to market conditions at that time. the lender
sometimes has the option to call the loan due with 30 days
notice at the end of seven or 10 years. also called "Super
Seven" or "Premier" mortgage.
The decision whether to make a loan to a potential home buyer
based on credit, employment, assets, and other factors and the
matching of this risk to an appropriate rate and term or loan
Interest charged in excess of the legal rate established by law.
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.
VA Mortgage Funding Fee
A premium of up to 1 & 7/8 percent (depending on the size of the
down payment) paid on a VA-backed loan. Typically, on a $75,000
fixed-rate mortgage with no down payment, this would amount to
$1,406 either paid at closing or added to the amount financed .
Variable Rate Mortgage
see Adjustable Rate Mortgage
Verification of Deposit
A document signed by the borrower's financial institution
verifying the status and balance of his/her financial accounts .
Verification of Employment
A document signed by the borrower's employer verifying his/her
position and salary.
Many mortgage firms must borrow funds on a short term basis in
order to originate loans which are to be sold later in the
secondary mortgage market (or to investors). When the prime rate
of interest is higher on short term loans than on mortgage
loans, the mortgage firm has an economic loss which is offset by
charging a warehouse fee.
Results when an existing assumable loan is combined with a new
loan, resulting in an interest rate somewhere between the old
rate and the current market rate. The payments are made to a
second lender or the previous homeowner, who then forwards the
payments to the first lender after taking the additional amount
off the top.