Financing Terms
- Adjustable Rate Mortgage:
Also known as variable rate.
These mortgages are generally long term commitments for
money but interest rates may fluctuate up or down on certain
dates during the life of the loan.
- Amortized Loan:
A loan which is paid off in equal
installments during its term.
- Assumable Mortgage:
Purchaser takes ownership to real
estate encumbered by an existing mortgage and assumes
responsibility as the guarantor for the unpaid balance of the
mortgage.
- Balloon Payment:
The final payment of a mortgage loan
when it is larger than the regular payment; it usually
extinguishes the debt.
- Buy Down:
Cash payments made at closing that allows the
borrower to take advantage of lower interest rates for a
specific period.
- Capital Gains Tax:
The tax on the taxable profit derived from
the sale of a capital asset. The capital gain is the difference
between the sale price and the basis of the property, after
making appropriate adjustments for closing costs, fixing up
expenses, capital improvements, allowable depreciation, etc.
- Closing Costs:
Expenses incurred in the closing of real estate
transaction. Purchaser’s expenses normally include: cost of
title examination, premiums for title policies, survey, attorney
fee, lender’s service fees, and recording charges. In addition,
the purchaser may have to place in escrow a sum of money to
cover accrued real estate taxes and insurance.
- Conventional Mortgage:
A loan neither insured by the FHA
nor guaranteed by the VA.
- Equity:
The difference between the market value of property
and the homeowner’s indebtedness (mortgage).
- Escrow Payment:
The portion of the mortgagor’s monthly
payment held in trust by the lender to pay for taxes, hazard
insurance, mortgage insurance, lease payments and other
items as they become due, known as impounds in some
states.
- Exchange:
The trading of an equity in a piece of property for
the equity of another.
- Firm Commit:
A lender’s agreement to make a loan to a
specific borrower on a specific property.
- Graduated Equity or Rapid Amortization:
Fixed rates long
term mortgage (25-40 yrs). The payments , however, are
increased annually in negotiated amounts. The additional
dollars are allocated to the outstanding principal, thereby
paying the mortgage off earlier than planned (12-15 yrs).
- Investor:
The holder of a mortgage or the permanent lender
for whom the mortgage banker services the loan. Any person
or institution that invests in mortgages.
- Lease Purchase Agreement:
Buyer makes a deposit for the
future purchase of a property with the right to lease the
property in the interim.
- Loan Commitment:
A written promise by a lender to make a
loan under certain terms and conditions. These include interest
rate, length of the loan, lender fees, annuals percentage
rate, mortgage and hazard insurance and other special requirements.
- Loan to Value Ratio:
The ratio of the mortgage loan principal
(amount borrowed) to the properties appraisal value (selling
price). On a $100,000 home, with a mortgage loan principal of
$80,000, the loan to value ratio is 80%.
- M.G.I.C.:
“Magic”- a vehicle to provide a mortgage loan principal
(amount borrowed) to the property’s appraisal value
(selling price). On a $100,000 home, with a mortgage loan
principal of $80,000, the loan to value ratio is 80%.
- Mortgage/Deed of Trust:
Pledge of real property to secure a
debt by a written instrument given by the mortgagor should
be recorded in the County Recorder’s Office.
- Note:
A written promise to pay a certain amount of money.
Origination Fee: A fee or charge for work involved in the
evaluation, preparation and submission of a proposed mortgage
loan.
- P.I.T.I.:
Principal Interest Taxes Insurance. Formula used in
calculation of amount the purchaser is qualified to borrow.
Generally this figure is 25%-28% of gross monthly income.
Point: One percent of loan amount.
- Prepayment Penalty:
A fee paid to the mortgagee for paying
the mortgage before it comes due. Also known as the prepayment
fee or reinvestment fee.
- Prepayment Privilege:
The right given a purchaser to pay all
or part of a debt prior to its maturity. The mortgagee cannot
be compelled to accept any payment other than those originally
agreed to.
- Privately Insured Mortgage:
A conventional mortgage loan
on which a private mortgage insurance company protects the
lender against loss.
- Rent with Option:
A contract which gives one the right to
lease property at a certain sum with the option to purchase at
a future date.
- Second Mortgage/Second Trust:
Junior Mortgage loan on
which a private mortgage insurance company protects the
lender against loss.
- Straight Loan:
A loan with specific payments of interest only;
the principal sum due in one lump sum upon maturity.
- Title:
Often used interchangeably with the word ownership.
It indicates the accumulation of all rights in property; the
owner’s and others.
- Title Insurance:
An insurance policy which protects the insured
(purchaser or lender) against loss arising from defects
in a title.
