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Mortgage Dictionary

  • Annual Percentage Rate (APR)

    The rate of interest to be paid on a loan’s projected life; sometimes referred to as the “true” rate of return.

  • Appraisal

    A professional evaluation of the value of a home or other piece of property. It is often required by the lender.

  • Balloon Mortgage

    A real estate loan in which some portion of the debt will remain unpaid at the end of the term of the loan. A balloon will usually result in a single large payment due when the loan ends.

  • Cap

    A limit on how much a mortgage interest rate may increase or decrease for an adjustable rate mortgage.

  • Conventional Mortgage

    A home loan that follows a fixed rate.

  • Debt-To-Income Ratio

    A ratio used by lending institutions to determine whether a person is qualified for a mortgage. Debt-to-income is the total amount of debt, including credit cards and other loans, divided by the total gross monthly income.

  • Default

    Failure to pay the mortgage payments over a specified period of time.

  • Discount Point

    A percentage of the mortgage paid to the lender to lower the interest rate on a loan. One point equals one percent of the mortgage.

  • Equity

    The difference between the market value of a house and the amount still owed on the mortgage.

  • Escrow

    Money and documents deposited in a trust account to be held by one party for another. Often used by brokers to hold deposit money prior to closing. Also used by lenders to hold money for taxes and insurance on a home.

  • FHA Loan

    A loan guaranteed by the Federal Housing Administration (FHA). FHA issues specific guidelines for mortgages.

  • Mortgage Insurance (MI)

    Insurance designed to cover the lender should the borrower default on the loan. Depending on the loan to value, this may be required by the lender.

  • Paper Trail

    Copies of all paperwork to cover the lender should the borrower default on the loan.

  • PITI

    PITI stands for Principal, Interest, Taxes, and Insurance. These are the four components of a mortgage payment when the borrower escrows, and it represents the monthly cost of the property.

  • Pre-Payment Penalty

    A fee imposed on a borrower who pays off a mortgage before it is due.

  • Prequalification

    A process by which a potential home buyer qualifies for a home mortgage before making an offer on a house. A lending institution agrees to make a loan in a specified amount to the person it has pre-qualified.

  • Principal

    The amount of the loan.

  • Second Mortgage

    An additional mortgage on a property. It often carries a shorter term and a higher interest rate than the original mortgage.

  • Title Company

    A company that searches for titles and insurance claims. Your loan will close at a title company.

  • Truth Lending Act

    A federal law that requires lenders to reveal all the terms of the mortgage.

  • VA Loan

    A loan guaranteed by the Veterans Administration (VA). To obtain a VA loan, the borrower must have served in the Armed Forces.

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