ACCELERATION CLAUSE

 

Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.

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ADDITIONAL PRINCIPAL PAYMENT

 

A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

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ADJUSTABLE-RATE MORTGAGE (ARM)

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A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

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ADJUSTED BASIS

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The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

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ADJUSTMENT DATE

 

The date that the interest rate changes on an adjustable-rate mortgage (ARM).

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ADJUSTMENT PERIOD

 

The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

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AFFORDABILITY ANALYSIS

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An analysis of a buyer's ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

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AMORTIZATION

 

The gradual repayment of a mortgage loan, both principal and interest, by installments.

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AMORTIZATION TERM

 

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

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ANNUAL ARM

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This loan has a rate that is recalculated once a year.

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ANNUAL PERCENTAGE RATE (APR)

 

The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans; however APR should not be confused with the actual note rate.

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APPRAISAL

 

A written analysis prepared by a qualified appraiser and estimating the value of a property.

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APPRAISED VALUE

 

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

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ASSET

 

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

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ASSIGNMENT

 

The transfer of a mortgage from one person to another.

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ASSUMABILITY

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An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

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ASSUMPTION FEE

 

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

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BALANCE SHEET

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A financial statement that shows assets, liabilities, and net worth as of a specific date.

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BALLOON MORTGAGE

 

A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

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BALLOON PAYMENT

 

The final lump sum paid at the maturity date of a balloon mortgage.

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BEFORE-TAX INCOME

 

Income before taxes are deducted.

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BIWEEKLY PAYMENT MORTGAGE

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A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

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BRIDGE LOAN

 

A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."

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BROKER

 

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

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BUYDOWN

 

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages

 

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CAP

 

Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning and may cause negative amortization.

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CERTIFICATE OF ELIGIBILITY

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A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

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CERTIFICATE OF REASONABLE VALUE (CRV)

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A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

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CHANGE FREQUENCY

 

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

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CLOSING

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A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called a "settlement."

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CLOSING COSTS

 

These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

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COMPOUND INTEREST

 

Interest paid on the original principal balance and on the accrued and unpaid interest.

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CONSUMER REPORTING AGENCY (OR BUREAU)

 

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

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CONVERSION CLAUSE

 

A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

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CREDIT REPORT

 

A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

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CREDIT RISK SCORE

 

A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

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