Adjustable
rate mortgages (ARMs)
Interest rate varies periodically depending on the determination of
the company who is managing your loan. Before consenting to an adjustable
rate mortgage, be sure you know when the lender has the right to change
the rate, or if there are any limits on how much interest will be charged,
or if your payments will change or how frequently the rate can be changed.
Amortization
The term used to indicate an equal periodic payment calculated to pay
off a debt at the end of a fixed period. Accrued interest on the outstanding
balance is included in that payment.
Amortized
loan
Requires you to make monthly payments on the principal and interest.
At the end of the loan term, your debt will also be paid off.
Amortization
Term
The time required to amortize a mortgage loan expressed as months (i.e.
360 months is the amortization term for a 30-year fixed-rate mortgage).
Annual
percentage rate (A.P.R.)
Expressed as a yearly percentage rate. It is a measurement of the full
cost of a loan which includes both interest & loan fees. A good
basis for comparing loan costs since all lenders apply the same rules
in calculating the APR.
Appraisal
An estimate of the value of property made by a qualified professional
called an "appraiser".
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Appraised
Value
Based on an appraiser's knowledge, experience, & property analysis,
an "appraised value" of a property's fair market value is
made.
Balloon loan
Allows you to pay interest only on the borrowed amount. Your monthly
payments will not reduce the principal amount of the loan. With such
a loan, you will be required to pay back the entire borrowed amount
at the end of the loan period.
Closing
The meeting where the property and funds legally change hands between
the buyer, seller and lender or their agents.
Closing
Costs
Expenses encountered in addition to the actual price of the property
incurred by buyers and sellers when transferring ownership of a property.
Closing costs usually include an origination fee, appraisal fee, discount
points, title search and insurance, deed recording fee, survey, taxes,
credit report charge and other costs. Closing costs are usually 3% to
6% of the mortgage amount and will vary according to the area and what
lenders are used.
Consumer
credit information
Or also known as a "credit report." 7 years of account/payment
history of your credit relationships can be found in this report as
well as 10 years of public record history. Name and address history
can also be found in this document.
Consumer
Reporting Agency (or Bureau)
An organization that prepares of reports used by lenders to determine
a potential borrower's credit history.
Conventional
loan
A mortgage not insured by FHA or guaranteed by the VA.
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Credit
Report
A report that documents the credit history as well as the current status
of a borrower's credit standing.
Credit
scores
A credit score is a number that reflects your credit worthiness. To
a lender, a higher number indicates that you are a low risk, or are
most likely to pay your debts. The score is determined by the use of
statistical models and the info obtain from your credit report. Your
past credit behavior and your current credit relationships indicate
your 'likely' future credit behavior. Because different credit bureaus
use various statistical models, you will discover that your credit score
varies depending on who is doing the reporting. MCIG will look at 3
different credit scores from 3 different credit bureaus, then will use
the middle score as an indication of your credit worthiness or actual
risk.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his or her
gross monthly income.
Default
Failure to meet legal obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.
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Delinquency
Failure to make payments on time. This can lead to foreclosure.
FHA mortgage insurance
A fee is required (up to 2.25 percent of the loan amount) which is paid
at closing to insure the loan with FHA. FHA mortgage insurance also
requires an annual fee of up to 0.5 percent of the current loan amount,
paid in monthly installments. The lower the down payment, the more years
the fee must be paid.
First
Mortgage
The primary lien against a property.
Fixed
rate loan
The interest rate is guaranteed for the life of the loan. All MCIG's
loan products have fixed interest rates.
Fixed
Rate Mortgage
The mortgage interest rate remains the same throughout the term of the
mortgage for the original borrower.
Foreclosure
A legal process in which property is repossessed as a result of the
borrower not meeting the terms of the mortgage.
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Home Equity Credit Line
Home equity credit lines is a useful source of credit for those needing
to borrow a large sum of money. You can usually borrow for lower interest
rates as well as use the interest paid on the loan as a tax deduction.
(Consult your tax advisor for details.) However, your home is used as
collateral for the loan which can put your home at risk if you are late
or are unable to make your payments. If you decide to sell your home,
most loans of this type require you to pay off the credit line at the
point of sale. The mortgage company does not have to give you the exact
amount of the monthly payment, but must explain how it is figured. This
is because the borrowed amount will vary and your outstanding balance
changes as you use the line of credit.
HUD-1
statement
An itemized listing of the funds that are payable at closing. Items
include real estate commissions, loan fees, points, and initial escrow
amounts. Each item on the statement is represented by a separate number
within a standardized numbering system. The totals at the bottom of
the HUD-1 statement define the seller's net proceeds and the buyer's
net payment at closing.
Interest
The fee charged for borrowed money.
Late Charge
The penalty a borrower must pay when a payment is late (usually 15 days
after the due date).
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Liabilities
A person's financial obligations which include long-term & short-term
debt.
Lien
A claim upon a piece of property for the payment or satisfaction of
a debt or obligation.
Loan
Borrowed money that is usually repaid with interest.
Loan
costs
Fees charged by a company for lending you money. Fee determination is
usually based on a percentage of the loan or "points." One
point is equal to one percent of the loan amount. For example, if you
borrowed $10,000 with a fee of ten points, you would pay $1000 in "points."
The number of points mortgage companies charge varies. If the fee seems
too high, you may be able to bargain for or find a lower fee. Be sure
to get the amount of the fee in writing before you take the loan.
Loan-to-Value
Ratio
Expressed as a percentage. Indicates the relationship between the amount
of the mortgage loan and the appraised value of the property.
Lock
Lender's guarantee that the mortgage rate quoted will be good for a
specific time period.
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Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal
to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage
would cost $2,000).
Pre-Approval
The process of determining how much money you will be eligible to borrow
before you actually apply for a loan.
Prepayment
Penalty
Money charged for an early repayment of debt.
Principal
The loan amount borrowed or remaining unpaid. Repayment of this portion
reduces the remaining balance of a mortgage.
Principal
Balance
The outstanding balance of principal on a mortgage less interest or
any other charges.
Second mortgage loans
Places an additional mortgage on your home. Money is loaned in a lump
sum, usually have fixed interest rates and fixed payment amounts. Can
be used to consolidate debt or fund a home improvement project.
Secondary
Mortgage Market
Where primary mortgage lenders sell the mortgages they make for more
funds to originate more new loans. Provides liquidity for the lenders.
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