If you don’t find a particular term here – or you have additional questions about one that is listed, please contact us in the way that is most convenient for you, so we can help you find the answer you need:
Adjustable Rate Mortgage (ARM): An ARM is a mortgage with an interest rate that adjusts periodically, according to a pre-selected schedule and index.
Amortization: Amortization means that mortgage debt decreases over time due to periodic payments scheduled over the course of the loan.
Annual Percentage Rate (APR): APR represents the percentage of total finance charge as a percentage of the total loan amount. APR is the standard set by the Truth in Lending Act that ensures you can compare rates at various financial institutions by looking at APR.
Appraisal: A home appraisal sets an estimate or opinion about the value of a home and should always be done by a qualified person.
Appreciation: Appreciation means increase in value.
Borrower: The person taking out a loan is the borrower.
Bridge Loan (Swing Loan): A bridge loan, also known as a swing loan allows you to purchase a new home even though you have not yet sold your current home, or the closing date for the sale of your current home is set for after the closing date for the purchase of your new home. Generally, you would use the current home as collateral for the bridge loan.
Cap: A cap refers to the maximum amount the mortgage rate can change each year and/or over the life of your adjustable rate mortgage (ARM)
Cash Out: Cash outs are often used to finance home improvements. When refinancing, it is the amount that is greater than your current mortgage.
Closing: The closing, often referred to as “passing papers”, is the final action in a real estate sale. It includes delivery of the deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the transaction.
Closing Costs (or Settlement Costs): Closing costs, also known as settlement costs, are the expenses paid by borrowers and sellers for the closing of the loan. This normally includes origination fees, discounts points, title insurance, survey, attorney's fees, and prepaid items such as taxes and insurance escrow payments.
Collateral: Collateral is the property that a borrower pledges to secure their loan.
Commitment: A commitment is an agreement, usually in writing, that outlines the conditions for a future loan.
Conventional Loan: In a conventional loan, the mortgage is not insured by any federally insured program, and therefore the lender takes all of the risk of the loan. As a result, conventional mortgages generally require larger down payments than those with federal insurance, such as FHA or VA loans, and they may require private mortgage insurance (PMI).
Debt-to-Income Ratio: The Debt-to-Income ratio is an important calculation that a lender uses when analyzing mortgage qualifications. Your monthly expenses, including housing expenses, are compared to your monthly income.
Down Payment: Down payment is the difference between the cost of real estate, such as your new home, and the actual amount of the mortgage.
Equal Credit Opportunity Act (ECOA or Regulation B): ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. ECOA is sometimes referred to as Regulation B or Federal Reserve Regulation B.
Equity: Equity in your home is the difference between the current fair market value of your home and the amount that you owe in existing mortgages. For instance, if your house appraises for $300,000, and you’ve paid all but $50,000 of your mortgage, your equity is $250,000.
Escrow Deposit Account: An escrow deposit account is a trust account that is set up to hold the funds that are allocated for the payment of real estate taxes, hazard or mortgage insurance premiums and similar expenses.
Federal Housing Administration (FHA): The FHA is a division of the Department of Housing and Urban Development (HUD). Its main activity is insuring residential mortgage loans made by private lenders, such as Meredith Village Savings Bank.
Fixed Rate Mortgage: A fixed rate mortgage has a set interest rate for the term of the loan.
Hazard Insurance: Hazard insurance covers property damage caused by such things as fire, wind, storms, and other similar risks. Sometimes earthquakes and floods are also covered, while other times they are not.
Homeowner’s Warranty (HOW) Program: The HOW program provides a warranty on the workmanship and materials of a home, as well as risk protection against major structural defects.
Index: An Adjustable Rate Mortgage’s (ARM) index is used to set the interest rate, subject to any rate caps, after the initial rate period ends.
Interest: Interest is the fee paid for the use of money, usually expressed as an annual percentage rate (APR).
Loan-to-Value Ratio (LTV): One of the factors lenders consider before they approve a mortgage is the loan-to-value ratio (LTV). The LTV is the loan amount expressed as a percent of either the purchase price or the appraised value of the property. So, if you make a 20 percent cash down payment on a property you're buying, the LTV is 80 percent.
Points: Points are a percentage of the loan due at the closing. 1 point is equal to 1% of the loan amount. If you have a loan of $100,000, and are charged 1 point, then the 1 point will be $1,000.
Prepayment Privilege: Prepayment privilege allows you to pay all or part of your loan off prior to its maturity.
Principal: Principal is the amount of debt, not including any accrued interest that remains on your loan.
Private Mortgage Insurance (PMI): PMI is insurance that a lender may require from homebuyers who obtain loans that are more than 80 percent of their new home's value. This insurance can protect the lender from loss in the case of mortgage default.
Secondary Mortgage Market: Existing mortgages and mortgage-backed securities are traded in the secondary mortgage market. The ability to sell your mortgage to another financial institution may enable your lender to offer you a lower interest rate on your mortgage.
Service Released: When a loan is sold on the secondary market, it is service released if the new financial institution takes over the servicing of the loan (taking payments, answering questions, handling issues, etc.)
Service Retained: When a loan is sold on the secondary market, it is service retained if the bank you selected for your loan sells the loan, but continues to service the loan (taking payments, answering questions, handling issues, etc.)
Title: The title is a legal document that shows the ownership of a specific property.
Title Insurance Policy: Title insurance is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
Title Search: A title search is an examination of the public records, laws and court decisions to disclose past and current facts regarding the ownership of a particular piece of real estate.
Underwriting: Underwriting is the process of analyzing risk and matching it to appropriate financing terms. Four major factors often considered when a lender considers your loan are your credit history, your income vs. debt ratio, down payment or equity, and compensating factors.
