Mortgage Glossary
Adjustable-rate loans, also known as variable-rate loans, usually
offer a lower initial interest rate than fixed-rate loans. The interest rate
fluctuates over the life of the loan based on market conditions, but the
loan agreement generally sets maximum and minimum rates. When interest rates
rise, generally so do your loan payments; and when interest rates fall, your
monthly payments may be lowered.
Annual percentage rate (APR) is the cost of credit expressed as a
yearly rate. The APR includes the interest rate, points, broker fees, and
certain other credit charges that the borrower is required to pay.
Conventional loans are mortgage loans other than those insured or
guaranteed by a government agency such as the FHA (Federal Housing
Administration), the VA (Veterans Administration), or the Rural Development
Services (formerly know as Farmers Home Administration, or FmHA).
Escrow is the holding of money or documents by a neutral third party
prior to closing. It can also be an account held by the lender (or servicer)
into which a homeowner pays money for taxes and insurance.
Fixed-rate loans generally have repayment terms of 15, 20, or 30
years. Both the interest rate and the monthly payments (for principal and
interest) stay the same during the life of the loan.
The interest rate is the cost of borrowing money expressed as a
percentage rate. Interest rates can change because of market conditions.
Loan origination fees are fees charged by the lender for processing
the loan and are often expressed as a percentage of the loan amount.
Lock-in refers to a written agreement guaranteeing a home buyer a
specific interest rate on a home loan provided that the loan is closed
within a certain period of time, such as 60 or 90 days. Often the agreement
also specifies the number of points to be paid at closing.
A mortgage is a document signed by a borrower when a home loan is
made that gives the lender a right to take possession of the property if the
borrower fails to pay off the loan.
Overages are the difference between the lowest available price and
any higher price that the home buyer agrees to pay for the loan. Loan
officers and brokers are often allowed to keep some or all of this
difference as extra compensation.
Points are fees paid to the lender for the loan. One point equals 1
percent of the loan amount. Points are usually paid in cash at closing. In
some cases, the money needed to pay points can be borrowed, but doing so
will increase the loan amount and the total costs.
Private mortgage insurance (PMI) protects the lender against a loss
if a borrower defaults on the loan. It is usually required for loans in
which the down payment is less than 20 percent of the sales price or, in a
refinancing, when the amount financed is greater than 80 percent of the
appraised value.
Thrift institution is a general term for savings banks and savings
and loan associations.
Transaction, settlement, or closing costs may include
application fees; title examination, abstract of title, title insurance, and
property survey fees; fees for preparing deeds, mortgages, and settlement
documents; attorneys’ fees; recording fees; and notary, appraisal, and
credit report fees. Under the Real Estate Settlement Procedures Act, the
borrower receives a good faith estimate of closing costs at the time of
application or within three days of application. The good faith estimate
lists each expected cost either as an amount or a range.
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