Glossary Of Terms

GLOSSARY OF TERMS

Adjustable Rate Mortgage (ARM) - A mortgage where the interest rate is subject to change over the term of the loan as determined by market influences such as interest rates on Treasury securities.

Amortization - The process of paying debt by installments of principal and earned interest over a fixed period of time.

Annual Percentage Rate (APR) - A measure of how much interest credit will cost, expressed as an annual percentage.

Appraisal - An expert judgment or estimate of the value of real estate, made by an appraiser, generally for the purpose of obtaining a real estate loan.

Balloon Loan - An amortized loan calling for one large payment for the remaining amount due at a specified time during the amortized period.

Closing Costs - All fees and charges paid at closing for services including the lender or mortgage broker, and certain other fees paid to third parties for services that the lender requires the borrower to purchase.

Credit Application - A form used by a lender to obtain personal, financial and credit information to appraise an applicant's credit worthiness.

Credit Report - Also known as consumer credit information, the report contains  information about a consumer's identity, credit relationships, any court actions, consumer statements and previous inquiries into that file.

Credit Score - A number typically between 330 and 830, that lets lenders and others determine how likely someone is to pay loans and credit cards.

Debt - A specified sum of money that is legally owed from one to another.

Debt-to-Income Ratio - The ratio of a borrower?s monthly payment obligation on long-term debt divided by the monthly income.

Discount Points - A lump sum paid to the buyer?s creditor to reduce the cost of the loan. This payment can either be required by the creditor or volunteered by the seller in a loan to buy real estate.

Down Payment - Amount paid up front when arranging credit, sometimes referred as cash down.

Equity - The financial difference between the current market value and the amount owed.

Escrow - Property or money held by a third party until the agreed upon obligations of a contract are met.

Escrow Account - Monies collected from the borrower?s installment payments for the purpose of paying property taxes and insurance. An escrow account is typically required when the loan is more than 80% of the property value.

Fixed Rate - The rate of interest charged for credit that does not change over the life of the loan.

Foreclosure - The legal action of the lender to take back possession of any property used to secure repayment for the loan when a debtor fails to meet the payment obligations.

Installment Loan - Debt borrowed for a specific purpose such as automobiles and real estate. The debt is paid in regularly scheduled installments over a specified period of time. The account is closed when the debt is paid.

Interest - The charge for the use or loan of money typically expressed as a  percentage. The interest rate remains constant in a Fixed Rate Mortgage.

Lien - Legal document used to create a security interest in another?s property. A lien is often given as a security for the payment of a debt. A lien can also be placed against a consumer for failure to pay what is owed.

Loan Origination Fee - The fee lenders charge for making a loan. Example: 1% for a $100,000 mortgage equals a $1,000 loan origination fee.

Market Value - The worth of something determined by a willing buyer and seller in an open market. Market value can fluctuate depending on supply and demand and other market forces.

Mortgage - A written agreement to repay a loan. The mortgage serves as proof of an indebtedness and states the manner in which it shall be paid.

PITI - Refers to the combined monthly amount of ?Principal, Interest, Taxes and Insurance? paid in the financing of real estate.

Principal - The original balance of money loaned. As the loan is paid over time, the principal is the remaining loan balance.

Private Mortgage Insurance (PMI) - Loans with smaller down payments involve  greater risk for the lender, who requires protection in case the loan goes into foreclosure. Anything less than 20% down payment usually requires PMI.

Property Taxes - The annual real estate taxes charged to property owners based on the assessed value of the property.

Revolving Debt - Debt on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used such as credit cards.

Term - The length of time you have to pay back a loan.


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