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Adjustable Rate Mortgage (ARM):
A mortgage with an interest rate that changes over time in line with
movements in the index. ARMs are also referred to as adjustable mortgage
loans or variable rate mortgages.
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| Adjustment Period: length of time between
interest rate changes on an ARM. For example, a loan with an adjustment
period of one year is called a one-year ARM, which means that the interest
rate can change once a year.
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| Amortization: Repayment of a loan in equal
installments of principal and interest, rather than interest only payments.
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| Annual percentage Rate (APR): The total
finance charge (interest, loan fees, points) expressed as a percentage of
the loan amount.
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| Assumption of Mortgage: A buyer's agreement to
assume the
liability under an existing note that is secured by a mortgage or deed
of trust. The lender must approve the buyer in order to release the original
borrower (usually the seller) from liability.
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| Balloon Payment A lump sum principal payment
due at the end of some mortgages (usually second mortgages, lines of credit,
or private-money financing.)
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| Cap: The limit on how much an interest rate or
monthly payment can change, either at each adjustment or over the life of
the mortgage.
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| CC&R’s Covenants, Conditions and
Restrictions. A document that controls the use, requirements and
restrictions of a property (typical in a condo.)
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| Closing Statement: The financial disclosure
statement that accounts for all of the funds received and expected at the
closing, including deposits for taxes, hazard insurance, and mortgage
insurance.
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| Condominium: A form of real estate ownership
where the owner receives title to a particular unit and has a proportionate
interest in certain common areas. The unit itself is generally a separately
owned space whose interior surfaces (wall, floors and ceilings) serve as its
boundaries.
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| Contingency. A condition that must be
satisfied before a contract is binding. For instance, a sales agreement may
be contingent upon the buyer obtaining financing.
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| Cooperative: A form of multiple ownership in
which a corporation or business trust entity holds title to a property and
grants occupancy rights to shareholders by means of proprietary leases or
similar arrangements.
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| Due-on-Sale Clause: An acceleration clause
that requires full payment of a mortgage or deed of trust when the secured
property changes ownership. Most home loans contain this clause.
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| Earnest Money: A deposit check, which
accompanies and buyer’s offer. This money is placed in escrow if and when
the buyer’s offer is accepted.
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| Escrow: A procedure in which a third party
acts as a stakeholder for both the buyer and the seller, carrying out both
parties' instructions and assuming responsibility for handling all of the
paperwork and distribution of funds.
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| Federal National Mortgage Association
(Commonly known a Fannie Mae) A privately owned corporation created by
Congress to support the secondary mortgage market. It purchases and sells
residential in bulk.
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| Fee Simple: An estate in which the owner has
unrestricted power to dispose of the property as he/she wishes, including
leaving by will or inheritance. It is the greatest interest a person can
have in real estate.
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| Graduated Payment Mortgage: A residential
mortgage with monthly payments that start at a low level and increase at a
predetermined rate.
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| Home Inspection Report: A qualified
inspector's report on a property's overall condition. This report is a
fairly common contingency in a purchase contract.
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| Horne Warranty Plan: Protection against
failure of mechanical systems within the property. Usually includes
plumbing, electrical, heating systems and installed appliances.
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| Index: A measure of interest rate changes used
to determine changes in an ARM's interest rate over the term of the loan.
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| Joint Tenancy: An equal undivided ownership of
property by two or more persons. Upon the death of any owner, the survivors
take the decedent's interest in the property.
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| Lien: A legal hold or claim on property as
security for a specified amount on specified terms.
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| Loan-To-Value Ratio: The relationship between
the amount of the mortgage and the appraised value of the property,
expressed as a percentage of the appraised value.
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| Margin: The number of percentage points the
lender adds to the index rate to calculate the ARM interest rate at each
adjustment.
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| Negative Amortization: Occurs when monthly
payments fail to cover the interest cost. The interest that isn't covered is
added to the unpaid principal balance, which means that even after several
payments you could owe more than you did at the beginning of the loan.
Negative amortization can occur when an ARM has a payment cap that results
in monthly payments that aren't high enough to cover the fully indexed rate
of interest.
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| Origination Fee: A fee or charge for work
involved in evaluating, preparing, and submitting a proposed mortgage loan.
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| P.I.T.I. Principal, interest, taxes and
insurance.
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| Planned Unit Development (PUD): A zoning
designation for property developed at the same or slightly greater overall
density than conventional development, sometimes with improvements clustered
between open, common areas. Uses may be residential, commercial or
industrial.
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| Point: An amount equal to 1 percent of the
principal amount of the loan. The lender assesses loan discount points at
closing to increase the yield on the mortgage to a position competitive with
other types of investments.
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| Prepayment Penalty: A fee charged to a
mortgagor who pays a loan before it is due.
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| Private Mortgage Insurance (PMI: Insurance
written by a private company protecting the lender against loss if the
borrower defaults on the mortgage. This is required on loans with less than
20% down payment.
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| Purchase Agreement: A written document in
which the purchaser agrees to buy certain real estate and the seller agrees
to sell under stated terms and conditions.
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| Realtor: A real estate broker or associate
active in a local real estate board affiliated with the National Association
of Realtors.
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| Regulation Z: The set of rules governing
consumer lending issued by the Federal Reserve Board of Governors in
accordance with the Consumer Protection Act.
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| Tenancy in Common: A type of joint ownership
of property by two or more persons with no right of survivorship. This form
of ownership has become a popular “condo alternative” in San Francisco.
It is commonly referred to as a TIC.
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| Title Insurance Policy: A policy that protects
the purchaser, mortgagee or other party against losses and fraud. The one
time premium is good for the duration of the ownership. |
