Mortgage Dictionary

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Adjustable Rate Mortgage (ARM)

A loan which has an interest rate which can adjust after an initial period wherein the rate is fixed (10yrs, 7yrs, 5yrs, 3yrs, 1 yr or even 3 or months). Usually the interest rate can only adjust up to a maximum rate each year (annual cap) and never higher than a certain specified rate (life cap).

Amortization

Number of fixed payments or years it takes to repay the entire amount of the mortgage loan.

Appraisal

The process of determining the value of the property, usually for lending purposes.

Assumption Agreement

A legal document signed by a home buyer which requires the buyer to assume responsibility for the obligations of a mortgage made by a former owner, usually for FHA and VA loans.

Broker

An intermediary between the buyer and the seller who is licensed to carry out such activities.

Building Permit

A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected.

Credit Report

An updated view of borrower's credit history over a seven year period (10yrs in the case of bankruptcy) as gathered through repositories such as TRW, Transunion and Equifax).

Conditional Offer

An offer to purchase subject to specific conditions. These conditions could be the arranging of a mortgage, or the selling of a present home. usually a time limit in which the specified conditions must be met is stipulated.

Conventional Mortgage

A first mortgage, up to 95% of the appraised lending value or the purchase price of the property, whichever is the lesser of the two, for a term usually up to 30 years. The loan maybe fixed or adjustable . Mortgage insurance is required on loans above an 80% loan to value.

Deed

The final document prepared by the lawyer to be signed by the seller and purchaser transferring ownership. This document is then registered against the property as evidence of ownership.

Default

Non-payment of the installments due under the terms of the mortgage(s).

Deposit

A sum of money deposited in trust by the purchaser on making an offer to be held by the broker, lawyer until the closing of the sale.

Discharge

The removal of all mortgages and other financial encumbrances on a property.

Encumbrance

A registered claim or debt against a property such as a mortgage or lien.

Equity

The interest of an owner in a property over and above all claims to the property.

Foreclosure

A legal procedure whereby the lender obtains ownership of the property following default by the borrower.

Indices

One year T-Bill

Three year T-Bill

COFI - Cost of Funds Index

LAMA - LIBOR Annualized Moving Rate

LIBOR - London Interbank Overnight Rate

Inspection

The examination of the house by an expert selected by the buyer.

Insurance

Before the transaction is closed, the purchaser must have fire insurance arranged and in effect. A certificate from the insurance company may be required at the closing.

Mechanics Lien

A claim against a property for money owing to a supplier, subcontractor or other person.

Mortgagee

The lender.

Mortgagor

The borrower.

Offer to Purchase

A written contract setting forth the terms under which a buyer agrees to purchase a property. Upon acceptance by the seller, it forms a contract which, will form the basis for the final document to be prepared by a lawyer or notary. It includes a legal and/or municipal description (this may consist of lot numbers as well as street address), purchase price, closing date, mortgage and terms of repayment, and lists specific items included as part of the sale.

Option agreement

A document stipulating that, in exchange for a deposit, a specified individual is to be given first chance of buying a property within a specified period of time. If the option holder does not buy within a specified period of time, he loses his deposit.

Premium Mortgage Insurance

A premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default on the part of the borrower.

P.I.

Principal and interest due on a mortgage.

P.I.T.I

Principal, Interest, Taxes and Insurance due on a mortgage.

Principal

The amount owing to the lender at any time.

Rate(interest)

The return the lender receives for putting up the money for the mortgage.

Ratios(front and back)

The front ratio is determined by dividing the principal interest and taxes by the borrowers gross monthly income. The back ratio is determined by adding the principal and interest to all other monthly debt obligations then dividing by the borrowers gross monthly income.

Second Mortgage

This is usually a higher interest rate and represents the difference between the price of the house and first mortgage plus the down payment. May be obtained through banks and finance companies or through lawyers and notaries.

Term

The length of time during which the agreement exists. A mortgage maybe amortized over a long period (such as 30 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid at current rates and conditions.

Title

Evidence of ownership.

Underwriting Fee

A sum of money collected by some lenders to offset expenses incurred in the lending transaction.

Zoning Laws

Municipal laws restricting the use of land for specific purposes.