Common Mortgage Terms
Glossary Index | A B C | D E F | G H I J K L M N | O P Q R S T U V Z
Origination Fee
A fee imposed by a lender to cover certain expenses in connection with making a real estate loan. Usually a percentage of the loan amount.
P & I
See Principal and Interest.
Payment Cap
See Rate Cap.
PITI
PITI is an abbreviation for Principal, Interest, Taxes and Insurance.
Points
Points are a percentage of the loan amount paid at closing that may affect your interest rate. For instance, on a $90,000 loan amount, 1 point = 1 % or $900. If you pay points, you may buy down the rate. Alternatively, in exchange for a higher rate, the lender may pay points to offset your closing costs. These are considered negative points.
Prepayment
Paying off an entire mortgage before it is due. Many mortgage loans offer prepayment without penalty. This may be important to keep in mind when comparing loan programs.
Prepayment Penalty
A charge a borrower pays a lender when the borrower wants to pay off a mortgage loan in advance of the agreed payment schedule. Not all loan programs have a prepayment penalty.
Pre-qualification
A preliminary evaluation of your financial status by a lender to estimate the amount and type of loans available to you. This evaluation does not include a 3rd party credit report, and the lender does not formally commit to giving you a loan.
Principal
The outstanding balance of a loan, excluding interest is known as the principal.
Principal & Interest (P&I)
Principal is the portion of the mortgage payment that goes to reduce the outstanding balance of the loan. Interest is the portion of the mortgage payment that goes to pay the finance charge on the outstanding balance of the loan. You pay a portion of these each month as part of your monthly mortgage payment.
Private Mortgage Insurance (PMI)
Insurance paid by the borrower that protects the lender in case of default on a loan. With conventional loans, mortgage insurance is generally not required with a down payment of at least 20%. Also known as mortgage insurance.
Property Type
See Condominium, Co-op, Manufactured Housing, Planned Unit Development, Multi-family, Single Family Attached Home, or Single Family Detached Home.
Planned Unit Development (PUD)
Subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots. Also, a comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, commercial, office and industrial areas.
Purchase Price
The price a buyer pays to purchase a home.
Qualify
The ability to meet a loan program's predetermined guidelines such as income, assets, credit history and debt.
Qualifying Ratios
The percentages that a lender will compare to see whether you qualify for a loan. This is made up of the debt-to-income ratio and the housing ratio.
Rate
See Interest Rate.
Rate Cap
A limit on how much the interest rate on an ARM loan can change in an adjustment period or over the life of the loan. For example, if your adjustment cap is 1% and your current interest rate is 6%, then your newly adjusted rate will be between 5% and 7%. A lender will provide this information for each of its ARM products.
Rate Float
The rate has not been secured and will fluctuate with the current market until protected by either a rate lock or rate protection.
Rate Lock
A lender's commitment to lend money at a particular interest rate as long as the loan closes and funds within a specified time period. The lock protects against rate increases during that time.
Rate Protection
A lender adds a cap to the current interest rate, which represents the maximum interest rate you will pay as long as the loan closes and funds before the rate expiration, even if rates increase. If rates drop, you will have a one-time option to lock in at a lower rate.
Refinancing
The process of paying off one loan with the proceeds from a new loan, using the same property as security. Homeowners may refinance to lower their interest rate, shorten the term of their loan, or to get cash out of the property's equity.
Second Mortgage
A second mortgage is a mortgage that has rights subordinate to a first mortgage. Also called second trust.
Settlement Statement
See Closing Statement.
Single Family Attached Home
A home where the customer owns the dwelling and lot but shares common wall(s) with another structure.
Single Family Detached Home
A free-standing home without any homeowner's association dues. If you pay homeowner's association dues your property would be considered a detached home in a planned unit development.
Subject Property
The property to be secured by the mortgage loan.
Survey
A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements and relationship to surrounding tracts. The buyer typically pays for the survey of the property.
Term of Loan
The amount of time you have to repay the mortgage loan. It's usually expressed as a number of months. For example, the term for a 30-year fixed-rate mortgage is 360 months (30 years X 12 months).
Title
Document that gives evidence of ownership of a property.
Title Insurance
Insurance that protects the lender or buyer against losses resulting from disputes over the title of a property. Lender Title Insurance is required to close a loan and is typically paid for by the buyer. A buyer must purchase their own separate title insurance policy to protect their interests.
Title Search
Examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property. A title search is required by the lender and is a standard part of closing costs paid for by the buyer.
Transfer Tax
Depending on the location, tax levied by state or local governments when property passes from one owner to another.
Total Monthly Payment
The sum of the loan principal, interest, taxes and insurance (PITI) that you pay the lender monthly.
Truth-in-Lending Act
A federal law requiring disclosure of credit terms in a standard format known as the truth-in-lending statement. With these statements, you can better compare the lending terms of different financial institutions.
Underwriting
In mortgage lending, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
VA Mortgage
A mortgage guaranteed by the Department of Veteran Affairs and only available for military personnel, veterans, or spouses of veterans who died of service-related injuries. Because the loan is guaranteed, it requires little or no down payment.
Veterans Administration (VA)
A government agency that administers benefit programs to help veterans return to civilian life, including guaranteed mortgage loans with little or no down payment.
