Mortgage Glossary

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Adjustable Rate Mortgage (ARM) - A general term for any mortgage in which the interest rate and generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a pre-selected interest rate index and the borrower's regular payments will increase or decrease accordingly.

Amortization - The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full.

Annual Percentage Rate (APR) - The actual rate the borrower pays when all the costs of obtaining credit are included.

Appraisal - A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

Cap - A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage.

Certificate of Title - (Deed) A document that assures the buyer that the person selling the property is indeed the legal owner of the property and that no one else has any legal claim to the property. This certificate does not protect against loss if a hidden claim emerges after purchase of a property. Only a title insurance policy can do that.

Closing (Loan Closing) - The process that brings a loan into legal existence, including the signing of all loan documents, their delivery to the appropriate parties, and the disbursing of at least some of the loan funds.

Closing Costs - Costs in addition to the price of the property itself that are due at closing. These costs normally include, but are not limited to origination fees, discount points (See Points), attorney fees, costs for title insurance, surveys, recording documents, and prepayments of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.

Condominium - A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in certain common areas. A condominium generally defines each unit as a separately owned space limited to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common areas is in terms of percentages and refers to the entire project less the separately owned units.

Conforming Loan Amount - A Fannie Mae (FNMA) established, maximum loan amount based on the property's legal number of units (1-family, 2-family, etc.) Loan amounts up to the maximum dollar amount are considered "conforming loans."

Cooperative - A form of multiple ownership of real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of proprietary leases or similar arrangements.

Credit Report - Completed by a credit reporting agency providing information about the buyer's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Depreciation - A lowering of value based on physical deterioration or functional or economic obsolescence.

Down Payment - The difference between the sales price of real estate and the amount of the mortgage loan.

Equity - The owner's interest or the amount of cash the owner realized, paid in or invested in real estate.

Escrow Account - An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums as they become due. Accounts in New York State earn 2%.

Federal Home Loan Mortgage Corporation - (a.k.a. Freddie Mac) A secondary market facility of the Federal Home Loan Bank System that is authorized to buy and sell conventional home loans and participating interests in blocks of conventional loans.

Federal Housing Administration - A federal agency within the U.S. Department of Housing and Urban Development (HUD). Using loan insurance programs to insure mortgages for lenders, the Federal Housing Administration (FHA) stimulates the availability of housing for low and moderate income families.

Federal National Mortgage Association - (a.k.a. Fannie Mae) A privately owned corporation created by Congress to support the Secondary Mortgage Market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA), as well as conventional home mortgages.

Fixed Rate Mortgage - A mortgage having a rate of interest, which remains the same for the life of the mortgage.

Interest - A charge for borrowing money. It is usually expressed on an annual rate, or as a percentage, of the money still owed.

Lien - A legal encumbrance or claim of one person on the property of another as security for a debt or charge.

Loan to Value - Mathematical computation that compares the loan amount to the value of the property or the purchase price, whichever is lower.

Margin - Under the terms of an adjustable-rate mortgage (ARM), the margin is a premium that a lender charges which is added to the index. This premium is typically two or three percentage points. Once the lender specifies the margin, it remains fixed.

Market Value - An estimate of the highest price a property would sell for within a reasonable period of time on the open market under normal conditions, between a willing, ready and able buyer and seller.

Mortgage - A pledge or security for the payment of a debt.

Mortgage Guaranty Insurance - Insurance written by an independent mortgage guaranty company that protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price. The federal government writes this form of insurance through the Federal Housing Administration (FHA) and the Veterans Administration (VA).

No Asset Verification - The Lender does not source funds on deposit. Sufficient funds must be on deposit 30 days prior to closing.

No Income Verification - The lender does not verify income and accepts the income as stated in the application. As a result, the lender will require a lower LTV ratio, a higher rate and additional points.

Note - A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called "promissory note."

Origination Fee - The fee that the lender charges the borrower to cover the cost of issuing a loan commitment.

PITI - (Principal Interest Tax Insurance) The total mortgage payment which includes principal, interest, taxes, and insurance.

Point - An amount equal to one percent of the principal amount of the note. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.

Prepaid Interest - Interest that the borrower pays the lender before it becomes due.

Qualifying Income Ratio - Income analysis used by lenders in deciding whether to offer the borrower the loan. One type of analysis compares only the proposed monthly mortgage payment to the monthly income. Another compares the amount of the total monthly payments (for example, car, credit card and proposed mortgage payments) to the monthly income.

Rate Lock - A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

Refinance - To change a loan from one financial institution to another, or to rewrite the terms of a loan contract within the existing lien institution.

Sales Contract - A written agreement between competent parties stating all terms and conditions of a sale.

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 improvements.

Title - The evidence of the right of ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, and gift or through the foreclosure of a mortgage.

Title Insurance Policy - A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects of title to real estate, where the insured has an interest as owner, mortgagee or otherwise.

Truth in Lending Act - Federal legislation that provided borrowers with specific information on the cost of obtaining credit.

Underwriting - In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant's creditworthiness and ability to repay the loan. The underwriter analyzes the risks involved and selects the appropriate loan term and interest rate.

Variable Rate Mortgage - A long-term mortgage loan in which the interest rate may vary or float periodically throughout the term of the mortgage. Also called "adjustable-rate mortgage."

Veterans Administration - An independent agency of the federal government which helps veterans get long-term, down payment mortgages. The agency normally does this by guaranteeing a portion of a lender's loans against loss. In return for this guarantee, lenders must follow prescribed procedures for loans established by the Veterans Administration (VA).

Yield - The effective rate or return on an investment based upon fees, the rate of interest and the price paid for the mortgage.

For more information stop by your local branch, the FSB mortgage center or call us at: 718.961.5400. Our mortgage center hours are weekdays 9:00 AM - 5:00 PM.