GLOSSARY OF FINANCING TERMS
ADJUSTABLE RATE MORTGAGE. Also known as variable rate. These mortgages are generally long term commitments for money but interest rates may fluctuate up or down on certain dates during the life of the loan.
AMORTIZED LOAN. A loan which is paid off in equal installments during its term.
ASSUMABLE MORTGAGE. Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.
BALLOON PAYMENT. The final payment of a mortgage loan when it is larger than the regular payment; it usually extinguishes the debt.
BUY DOWN. Cash payments made at closing that allows the borrower to take advantage of lower interest rates for a specific period.
CAPITAL GAINS TAX. The tax on the taxable profit derived from the sale of a capital asset.
CLOSING COSTS. Expenses incurred in the closing of a real estate or mortgage transaction. These costs may include the cost of title examination, premiums for title policies, attorney fees, lenders service fees, recording costs, accrued real estate taxes, insurances, etc.
CONVENTIONAL MORTGAGE. A loan neither insured by the FHA nor guaranteed by the VA.
EQUITY. The difference between the market value of property and the homeowner=s indebtedness.
ESCROW PAYMENT. That portion of a mortgagor=s monthly payment held in trust by the lender to pay for taxes, insurances, lease payments and other items as they become due, known as impounds in some states.
EXCHANGE. The trading of an equity in a piece of property for the equity of another.
FIRM COMMITMENT. A lender=s agreement to make a loan to a specific borrower on a specific property.
GRADUATED EQUITY OR RAPID AMORTIZATION. Fixed rates long term mortgage (25-40 years). The payments, however, are increased annually in negotiated amounts. The additional dollars are allocated to the outstanding principal to pay the mortgage off earlier than planned. (12-15 yrs.)
INVESTOR. The holder of a mortgage or the permanent lender for whom the mortgage banker services the loan.
LEASE PURCHASE AGREEMENT. Buyer makes a deposit
for the future purchase of a property with the right to lease the property in the interim.
LOAN COMMITMENT. A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of loan, lender fees, annual percentage rate, etc.
LOAN TO VALUE RATIO. The ratio of the mortgage loan principal amount to the property=s appraised value.
MORTGAGE/DEED OF TRUST. Pledge of real property to secure a debt by a written instrument.
MORTGAGEE. The lender of money or the receiver of the mortgage document.
NOTE. A written promise to pay a certain amount of money.
ORIGINATION FEE. A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
P.I.T.I. Principal, interest, taxes and insurance.
POINT. One percent of the loan amount.
PREPAYMENT PENALTY. A fee paid to the mortgagee for paying the mortgage before it becomes due.
PREPAYMENT PRIVILEGE. The right given a purchaser to pay all or part of a debt early, without penalty.
PRIVATELY INSURED MORTGAGE. A conventional loan on which a private mortgage insurance company protects the lender against loss.
RENT WITH OPTION. A contract which gives one the right to lease property at a certain sum with the option to purchase at a future date.
SECOND MORTGAGE/SECOND TRUST. Junior mortgage or junior lien; an additional loan imposed on property with a first mortgage. Generally at a higher interest rate and shorter terms than a Afirst@ mortgage.
STRAIGHT LOAN. A loan with periodic payments of interest only; the principal sum due in one lump sum upon maturity.
TITLE. Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property; the owners and others.
TITLE INSURANCE. An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.