Glossary of Terms
Adjustable Rate Mortgage (ARMs): Mortgage loans in which theinterest rate and monthly payments may be adjusted periodically to correspond with changes in the cost of funds.
Amortization: Payment of a debt in regular, periodic installments ofprincipal and interest, as opposed to interest only payments.
Amortization Schedule: A schedule showing each payment of a loan tobe amortized and breaking down the payment into the amount applied to principal and the amount applied to interest.
Annual Percentage Rate (APR.): This is the cost of your credit expressed in terms of an annual rate. Because you may be paying “points” and other closing costs, the APR disclosed is often higher than the interest rate on your loan. The APR can be compared to the APR for other loans for which you may have applied to give you a fair method of comparing price.
Assumption Fee: Lender’s charge for paperwork involved in processing records for a new buyer assuming an existing loan.
Balloon Payment: When the final installment payment on a note is greater than the preceding installment payments and it pays the note in full.
Cap: (1) Change Cap – an interest rate cap that limits the increase on the interest rate from one adjustment period to the next. (2) Life Cap – an interest rate cap that limits the increase in rate over the life of the loan.
Closing Statement: The statement that lists the financial settlement between buyer and seller, and also the costs each must pay.
Condominium: A system of individual fee ownership of units in a multi-family structure, combined with joint ownership of common areas of structure and the land.
Contingency: The dependence upon a stated event that must occur before a contract is binding. For example, The sale of a house is contingent upon the buyer obtaining financing.
Conventional Loan: A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA).
Cooperative Ownership: Also called a stock cooperative or a co-op. A structure of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation that owns the building. Difficult to obtain financing because there is not individual ownership of each unit. A forerunner of the condominium.
Deed of Trust: An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary), and reconveyed upon payment in full.
Earnest Money: Down payment made by a purchaser of real estate as evidence of good faith.
Escrow: Delivery of a deed by a grantor to a third party for delivery to the grantee.
Federal Housing Administration (FHA): An agency of the federal government that insures mortgage loans.
Home Warranty Insurance: Private insurance insuring a buyer against defects (usually in plumbing, heating and electrical) in the home purchased. The period of insurance varies and both new and used homes may be insured.
Loan-Origination Fee: A one-time set-up fee charged by the lender.
Points: One percent of the loan amount.
Title Insurance: Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.
Variable Interest Rate: An interest rate that fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to frequency and amount of fluctuation. Also called “flexible interest rate.”
VA Loans: Housing loans to veterans by banks, savings and loans, or other lenders that are insured by the Veteran’s Administration, enabling veterans to buy a residence with little or no money down.
