"Property Ownership Within Reach" First and Second Mortgages · Purchases · Refinancing · Home Equity Loans · Lines of Credit Ph: 267-382-0690 Toll Free: 866-636-9300 · Licensed in Pennsylvania |
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Glossary of Mortgage Terms
Adjustable Rate Mortgage (ARM): Also
known as the variable rate mortgage, an ARM
is a mortgage in which the interest rate is adjusted periodically
based on a pre-selected index. An adjustable rate is based on a margin plus and index.
The margin is fixed for the life of the loan.
The index will adjust based on the market or economic conditions. As a
result, the interest rate on your loan will rise and fall with increases
and decreases in overall interest rates. If interest rates rise, you
can expect to see an increase in what you pay monthly as well. The
ARM often comes with an interest rate cap, which limits the amount by
which the interest rate can change. Though they do have the potential
to raise your monthly payments, an adjustable-rate-mortgage can make
a big difference in lowering your monthly payments too.
Appraisal: A home appraisal is a written analysis of the estimated
value of your property. A qualified licensed appraiser who has training,
experience and insight into the market place prepares the home
appraisal report. It demonstrates approximate fair market value
based on recent sales in your neighborhood and is required to
purchase or refinance your new home or property. A property
appraisal like this is generally required by a lender before
loan approval to ensure that the mortgage loan amount is not
more than the value of the property.
Balance: The dollar amount of the loan that is left to be paid.
It is equal to the loan amount minus the sum of all prior payments
towards the principal.
Balloon Mortgage: A balloon mortgage is a loan with a fixed-rate
and fixed monthly payments for a set number of years followed by
one large final balloon payment for all of the remainder of the
principal balance. Typically, the balloon payment may be due at
the end of five, seven, ten or fifteen years. Borrowers with
balloon mortgage loans may have the right to refinance or pay off
the loan before or at the time the balloon payment is due
depending on the contractual agreement of the mortgage note.
Bankruptcy: Bankruptcy is a proceeding in a federal court to relieve
certain debt of a person or a business unable to pay its debts. A
bankruptcy will stay on your credit rating for 7 to 10 years acting
like a warning to potential lenders. The assets of a person filing
bankruptcy are then turned over to a trustee and used to payoff
outstanding bills. Personal bankruptcy can provide relief to
people on dire financial straits by releasing them from the
obligation to repay their debts.
Borrower (Mortgagor): The borrower in a mortgage loan transaction.
Caps: Interest caps are consumer safeguards that limit the
rise or fall of interest rates on an adjustable rate mortgage.
Interest caps offer borrowers protection from drastically
increased interest rate on your loan.
Cash Out: A cash out refinance loan allows you to get a new
loan that is larger than the remaining balance of your current
mortgage, based upon the equity you have already built up in
the house, and receive a cash balance of that lump sum. The
cash out amount is calculated by subtracting the sum of the
old loan and fees from the new mortgage loan. Several ways
to cash out when you refinance are consolidate your credit
card debt, auto loans and any other high-interest bills you
may have into one low monthly mortgage payment. The interest
rate may be a tax deduction. Consult your CPA or tax consultant
for additional information.
Ceiling: The maximum allowable interest rate of an adjustable
rate mortgage.
Co-Borrower: A person who along with the primary borrower
accepts responsibility for repaying the mortgage also referred
to as co-applicants. The co-borrower is most cases are required
to live in the secured property as the borrower. A co-borrower
is often added to the application to help the primary borrower qualify for a loan.
CODI (Certificate of Deposit Index): The Certificates of Deposit
Index is a 12- month moving average of the monthly yields on 3 month
certificates of deposit as published by Federal Reserve Board. The
CODI is announced the first business Monday of each month and
remains effective from that day until the first business Monday of
the following month. Historically, CODI does not move up or down
as rapidly as market interest rates such as the Bank Prime,
Federal Funds rate or Treasury bill rates because of the method
used to calculate the index.
Collateral: Assets (such as your home) pledged as security for
a debt.
Combined Loan-To-Value Ratio (CLTV): The percentage of the property
value borrowed through a combination of more than one loan.
(Example- the balance of the first mortgage and the balance of
the home equity loan or line of credit dividing the total into the
current market value of the property.)
COSI (Cost of Savings Index): The COSI is a very stable and slow-moving
index. World Savings calculates COSI at the end of every month using the
weighted average rate paid on their deposits, including certificates of
deposit, and savings and checking accounts. COSI does not move up or
down as rapidly as other market interest rates such as the Treasury,
LIBOR, or Prime.
Credit Score: Your credit score is technically a statistical
method of assessing your creditworthiness. Credit scores are
based on several different factors including your credit
history, amount of outstanding debt and the type of credit
you use. Negative information, such as bankruptcies or late
payments, is also used to calculate your credit report score
as well as collection accounts and judgments. Insufficient
credit history and/or too many credit lines with the maximum
amount borrowed are also included in credit-scoring models
to determine your credit score.
Escrow: The escrow accounts are special accounts that a lender uses
to hold a borrower's monthly payments towards property taxes,
homeowner's insurance and mortgage insurance if applicable.
By distributing these annual fees as components of monthly
mortgage payments paid by the borrower, you don't have to worry
about getting an exorbitant bill in the mail that you can't
afford. Instead, you pay a portion of the expected fee into an
escrow account throughout the year and the lender disburses
payment for these fees when they become due.
FHA: Federal Housing Authority
FHLMC (Freddie Mac): The Federal Home Loan Mortgage Corporation
FICO Credit Score: FICO refers to the Fair Isaac & Co. credit score method.
Credit scores are calculated by using models that assign points for various
pieces of information which predict how likely someone is to pay their bills.
The higher your FICO score, the more likely you will show good credit
worthiness on your credit report.
FNMA (Fannie Mae): The Federal National Mortgage Association - A
federally chartered and privately owned corporation, organized
and existing under the Federal National Mortgage Association
Charter Act or any successor thereto.
Fixed Rate Mortgage: A fixed rate mortgage has the same interest
rate and monthly payment throughout the term of the mortgage. The
payment is calculated to pay off the mortgage balance at the end of the term.
Fixed Rate versus Adjustable Rate: A fixed rate mortgage has the
same payment for the entire term of the loan. An adjustable rate mortgage (ARM)
has a rate that can change, causing monthly payments to increase or decrease.
Full Income Verification: Documented income that is verified by
the underwriter to qualify for a loan. Documented income is the
actual income from a wage earner providing current pay stubs and
W-2's for the last two years, self employed individuals providing
the last two year's compete tax returns with business schedules,
and fixed income such as retirement, pension, social security,
and permanent disability.
Fully Indexed Rate: The interest rate used to accrue interest on
the Negative Amortization Mortgage after the initial fixed period has ended.
Home Equity: The difference between the current market value of
a property and the total debt obligations against the property.
On a new mortgage loan (purchase), the down payment represents
the home equity in the property.
Home Equity Line of Credit (HELOC): A home equity line of
credit is a credit line that is kept open and restored as you
pay off what is owed. A home equity line of credit also has a
high credit limit similar to a credit card that you are allowed
to draw( write checks) upon as needed. In most cases, a home
equity line of credit rate is lower than the interest rates on
credit cards. Plus, a home equity credit line can offer
additional savings due to tax advantages.
Home Equity Loan: A home equity loan is based on the equity of the
secured property. The equity is determined on the difference of the
appraised market value of the property minus the balance of all
secured mortgages on the property. The home equity loan is typically
used for home improvements, debt consolidation on credit cards, cash
for personal reasons, or to pay off other high monthly debts into
one low monthly payment. The interest paid on the loan is usually
tax-deductible but should consult with your tax advisor for a
definite explanation.
HUD: The Department of Housing and Urban Development - A
governmental entity responsible for the implementation and
administration of housing and urban development programs.
Interest Only ARM: An interest only ARM only requires monthly
interest payments. Since you are not paying off the principal
each month, the monthly payment is typically lower because it
will cover only the interest portion of the loan. An interest
only ARM will often have a period where the interest rate is
fixed, and then it is adjusted according to the program. The
rate of the interest only ARM will vary by lender.
Interest Only Payments: Interest only payments is a specific loan
program at which the borrower agrees to pay the minimum monthly
due (interest) for a limited period usually up to 10 years. During
that time, the principal balance doesn't decrease unless you pay an
additional amount higher than your minimum monthly payment. When
the limited period ends, the monthly payment will increase to
cover the fully amortized payment (interest and principal) until
the end of the term.
Interest Rate: Annual interest rate for each mortgage type.
Interest Rate Cap: The maximum interest rate for the mortgage.
The mortgage's interest rate will never exceed the interest rate cap.
Lender: A person who in the ordinary course of business
extends credit to borrowers.
Limited Documentation (Low Documentation): Limited doc program
requires minimal paperwork to apply for a loan. Limited doc is
popular for applicants who are interested in supplying the least
amount of paperwork to qualify for a loan. Typically, the
program requires verifying the assets to equal 3 to 4 months of
the monthly housing expense (principle, interest, taxes and
insurance) and bank statements, and employment. The guidelines
may vary depending on the lender. Limited documentation
attract individuals such as waitresses, bartenders, sales people
who don't draw a regular salary but receive the majority of
income by cash or commission.
Lines of Credit also known as Home Equity Line of Credit (HELOC): A
home equity line of credit is a credit line that is kept open and
restored as you pay off what is owed. A home equity line of credit
has a pre determined approved high credit limited similar to a credit
card that you are allowed to draw (write checks against) upon as
needed. Your monthly payments are based on what was used on the
line. In most cases, the program has a pre determined draw
period and interest only payments.
Margin: A margin is the percentage difference between the index
for a particular loan and the interest rate charged. It is a
number predetermined by the lender. The margin is a fixed
percentage point that is added to the index to compute the
interest rate. The margin remains fixed for the entire term
of the loan.
Monthly Payment Options ("Pick a Pay"): In today's industry, most
lenders have designed programs that offer monthly payment options
for their borrowers. The popular terminology is "pick a pay" and
"payment option". You'll enjoy the flexibility and financial
freedom that come with having extra money every month to address
other pressing financial concerns. The payment options that are
listed on your billing statement every month vary depending on
the programs available from the lender. Simply choose the payment
that best fits your needs. The most popular options are minimum
payment (negative amortization), interest only, 15 year
amortization, and 30 year amortization. Contact Annamarie for
more details.
Months Rate Fixed: The number of months the rate is fixed for an
ARM. During the specific period of the loan, the interest rate
and the monthly payment will remain fixed.
Mortgage Amount: Expected balance for your mortgage.
Mortgage Broker: A mortgage broker is an individual or company
that arranges financing for borrowers. The mortgage broker
matches lenders with borrowers who meet the lenders criteria.
Mortgagee: The lender in a mortgage transaction.
Mortgage Note or "Note": A real estate mortgage note is a legal
document obligating a borrower to repay a loan at a stated interest
rate during a specific period of time. The agreement is secured
by a mortgage or a deed of trust. The note will contain the important
loan elements such as your loan amount, interest rate, due dates,
late charges and the terms of your mortgage.
No Documentation (No Employment, No Income, and No Assets Verification):
Information regarding income, employment, and assets are omitted from
the mortgage application and are not verified.
No Income, No Assets (NINA): The income and assets information on the
application is omitted and are not verified. The applicant must
show employment for the last two years.
Principal and Interest Payment (P & I): A monthly principal and
interest payment is a mortgage payment where the borrower has
agreed to pay specific interest rate, term, and loan amount.
You can estimate your monthly principal and interest payment using the page
called calculator on this site. Just enter your expected loan
amount, term, and interest rate. It will automatically calculate
the monthly mortgage payment excluding real estate taxes and home
owner's insurance.
Stated Income (Self Employed and Wage Earners): Stated Income
programs are mostly used by self employed people and wage earners
who can not verify income or choose not to disclose income.
The income stated on the application must appear reasonable to the
applicant's location, occupation, and length of experiences.
Linked to case studies.
Term: The number of years over which you will repay the mortgage.
Contact us today for
help with mortgage financing in Pennsylvania (PA).
Licensed by Pennsylvania Dept. of Banking
Pursuant to the First and Secondary Mortgage Loan Act