Amortization - Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments.
Annual Percentage Rate - A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.
Balloon Payment - The final, lump sum payment paid at the maturity date of a balloon mortgage.
Borrower - A person who receives funds in the form of a loan from a lender and who will be obligated to repay the loan in full, usually with interest, to the lender.
Collateral - Property pledged as security for a debt, such as the real estate as security for a loan.
Commitment – An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.
Contract For Deed – (1) A contract between a buyer and a seller of real estate where the buyer pays for the property in installments, has possession of the property and holds equitable title. Actual title is held by seller until the final payment. (2) Also called a Land
Credit Rating – A rating assigned to a person to help establish ability to pay obligations based upon one's past history of timely payment.
Credit Report – A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit-worthiness.
Debt-To-Income Ratio – Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for loans, typically setting a maximum debt-to-income ratio of 36 percent.
Down Payment – The part of the purchase price paid by a buyer from his/her own funds to make up the difference between the purchase price and the loan amount.
Equity – The homeowner's ownership interest in real property. Simply put, it is the difference between fair market value and the current amount the owner owes on any loan on the property.
Financing Costs – The cost of interest and other charges involved in borrowing money to build or purchase real estate.
First Mortgage – A security interest in real estate that creates a primary lien in favor of the lender against real property.
Fixed-Rate Loan – A loan with the same rate of interest for the life of the loan.
Foreclosure – A legal procedure through which a borrower in default is deprived of his/her interest in mortgaged property. There is foreclosure by sale and strict foreclosure. In foreclosure by sale, the mortgaged property is sold to satisfy the loan and title to the property passes to the lender or to a third party that purchases the property at foreclosure sale. Strict foreclosure is a judicial process through the courts.
Gross Monthly Income – The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show a consistent history of receiving such income and does not take out taxes and withholdings.
Guaranty – A promise by one party to pay a debt or to perform an obligation contracted by another if the original party fails to pay or perform pursuant to a contract.
Hazard Insurance – An insurance contract where the insurer contract pays for loss on a home from certain hazards, such as fire, in exchange for the purchaser’s regular payment of premiums (or the cost of insurance).
Housing Expense Ratio – A homeowner's monthly expenses as a percentage of his or her monthly income.
Interest – An amount paid for the use of money– that is, the cost of securing a loan.
Interest Rate – A fee charged by a lender for the borrowing of money for a specified time, usually expressed as an annual percentage.
Interest Rate Cap – The maximum interest rate charge allowed on an adjustable-rate loan for any one adjustment period during the life of the loan.
Loan – Borrowed money (principal) typically repaid with interest.
Loan-To-Value Ratio – The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $33,250 on a home that costs $35,000 the loan-to-value ratio is 95 percent (33,250 divided by 35,000).
Mortgage – A security interest in real property given by a borrower in exchange for a loan from the lender to enable the borrower to purchase real estate, for example. The lender will hold a security interest (mortgage) in the property and the borrower will make regular payments, including interest, to reduce the loan amount until paid in full.
Mortgage Banker – One who originates mortgages exclusively for resale on the secondary mortgage market.
Mortgage Broker – One who charges a service fee for bringing together a borrower and lender for the purpose of a loan origination.
Mortgagee – A lender to whom a security interest in property is conveyed in exchange for the loan.
Mortgage Life Insurance – A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
Mortgagor – One who borrows money, giving as security a mortgage or deed of trust on real property.
Origination Fee – A one-time fee (points) charged by a lender for making a real estate loan. The fee (usually a percentage of the amount loaned) may include the costs of loan document preparation, a credit check and an appraisal.
PITI – Principal, Interest, Taxes, and Insurance are the components of a mortgage payment, on a mortgaged loan.
Point – A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.
Prepayment Clause – The clause in a mortgage or note allowing a borrower to pay off the loan prior to the date of maturity.
Prepayment Penalty – An amount that may be charged to the borrower by the lender for the early repayment of a debt. The prepayment penalty compensates the lender for the interest on the loan it would now not be earning.
Principal – The original balance of money loaned, excluding interest. Also, the remaining balance of a loan excluding interest.
Private Mortgage Insurance (PMI) – Insurance generally required by a lender when the borrower’s down payment is less than 20 percent of the purchase price, enabling a lender to make a conventional loan of a higher percentage of the property value. The cost of private mortgage insurance is usually included in the borrower’s monthly mortgage payment.
Redlining – The discriminatory practice of denying loans or insurance to people trying to buy or live in certain areas.
Simple Interest – Interest computed only on the principal balance.
Variable Interest Rate – An interest rate that fluctuates as the prevailing rate moves up or down. In mortgages there are usually caps to the frequency and amount of fluctuation.