GLOSSARY
What is a mortgage?
Most people do not have enough cash for the full price of a home, so they obtain a home loan to help purchase it.
Annual Percentage Rate (APR)
The annual percentage rate is the cost of the credit expressed as a yearly rate. The finance charges for the loan will include any points and part of the fees assessed, and will be reflected in the APR for your loan. It is best to compare actual written Good Faith Estimates from each lender when shopping fees and rates.
Closing
Closing procedures transfer ownership from the seller to you. Closing costs include fees you pay for the services of the lender and other costs involved with the sale of the home.
Down Payment
The cash amount you pay toward the purchase price of your home at closing. Your home loan (mortgage) is the amount of money you borrow. Together, the down payment plus the loan make up the purchase price of the home you are buying.
Equity
This is your home’s current market value, less the amount that you owe on your first mortgage and any second mortgage or line of credit.
Escrow
Escrow is the practice of delivering all required money and documents to the neutral third party to hold until you, the seller, and the lender have fulfilled all the conditions of the agreements. The escrow agent prepares documents, pays off existing loans, requests title insurance, and divides tax and insurance payments between you and the seller. (In some states, this is handled by an attorney).
Impounds
Many borrowers choose to include monthly installments for their anticipated property taxes and homeowner’s insurance with their monthly payment. Impounds represent a portion of a borrower’s monthly payments held by the lender to pay for taxes, insurance, and other items as they became due.
Interest Rate
The basic cost of borrowing money expressed as an annualized percentage.
Lock-in
A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you for a specified period of time, while your loan application is processed. Lock-in rates can be 15, 30, 45 or 60 days or longer.
The Maturity Date
The date the loan is scheduled to be paid in full.
PITI
PITI is shorthand for four amounts that may be included in your monthly mortgage payment.
- Taxes: Real estate taxes assessed by difference government agencies to pay for school construction, fire department services, etc.
- Insurance: Property insurance coverage against theft, fire, hurricanes or other disasters
Points
A point is equal to one percent of the amount of money you borrow. Points are often charged at the beginning of the loan and are part of the cost of borrowing money. The loan origination fee is one form of points.
Pre-Payment Penalties
Some mortgage lenders charge pre-payment fees if you pay off your mortgage prior to a specified date. Accepting a pre-payment penalty on your loan can sometimes enable you to obtain a lower interest rate. If you do not plan to prepay your loan within the period covered by the pre-payment penalty, this feature may save you some finance charges. However, you should check with your lender on pre-payment penalties. You may want to avoid pre-payment clauses if you plan to pay down your mortgage early.
The Purchase Price
The price of the home agreed upon by the seller and buyer.
Second Mortgage
Any loan made on the home after the original mortgage loan or loan which is in a junior position to the first mortgage loan can be referred to as a second mortgage. Lenders will lend money secured by the equity in your home for making home improvements, consolidating debts, sending your child to college, etc.
Term of the Loan
The length of time you have to repay your loan, typically 10, 15, 25, 30 or 40 years.
.
