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Means loan payment
by equal periodic payment calculated to pay off the debt at
the end of a fixed period, including accrued interest on the
outstanding balance.
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Amount
Financed
The Amount
Financed is the loan amount applied for less the prepaid finance
charges. Prepaid finance charges can be found on the Good Faith
Estimate. For example, if the borrower's note is for $100,000
and the Prepaid Finance Charges total $5,000, the amount financed
would be $95,000. The Amount Financed is the figure on which
the Annual Percentage Rate is based.
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APR
(Annual Percentage Rate)
This is not the Note Rate
for which the borrower applied. The Annual Percentage Rate (APR)
is the cost of the loan in percentage terms taking into account
various loan charges of which interest is only one such charge.
Other charges which are used in calculation of the Annual Percentage
Rate are Private Mortgage Insurance or FHA Mortgage Insurance
Premium (when applicable) and Prepaid Finance Charges (loan
discount, origination fees, prepaid interest, and other credit
costs). The APR is calculated by spreading these charges over
the life of the loan which results in a rate higher than the
interest rate shown on your Mortgage/Deed of Trust Note. If
interest was the only Finance Charge, then the interest rate
and then Annual Percentage Rate would be the same.
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An ARM is a mortgage in
which the interest rate is adjusted periodically based on a
preselected index. Also sometimes known as the re-negotiable
rate mortgage, the variable rate mortgage or the Canadian rollover
mortgage.
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Balloon loans are
short term mortgages that have some features of a fixed rate
mortgage. The loans provide a level payment feature during the
term of the loan, but as opposed to the 30 year fixed rate mortgage,
balloon loans do not fully amortize over the original term.
Balloon loans can have many types of maturities, but most balloons
that are first mortgages have a term of 5 to 7 years. At the
end of the loan term there is still a remaining principal loan
balance and the mortgage company generally requires that the
loan be paid in full, which can be accomplished by refinancing.
Many companies have other options such as a conversion feature
at the end of the term. For example, the loan may convert to
a 30 year fixed loan at the thirty year market rate plus 3/8
of a percentage point. Your conversion can be guaranteed based
on certain criteria such as having made your last 24 payments
on time. The balloon mortgage program with the conversion option
is often called a 7/23 Convertible or 5/25 Convertible.
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A loan subsidized
by the builder where money is put into an escrow to "buydown"
the interest rate for a period of time. The borrower is qualified
at the reduced payment level, therefore allowing him/her to
obtain a larger mortgage than would otherwise be possible. An
example of a 2/1 buydown would be where the builder buys the
loan down by 2% the first year, and 1% the second year. After
the second year, the loan reverts to the full rate.
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A loan that does
not have government insurance or a government guarantee to back
it should it default. However, loans with LTV ratios greater
than 80% may have private mortgage insurance. Normally conventional
loans require higher down payments (minimum 10%) and allow for
higher loan limits than FHA or VA loans.
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Also known as Regulation
B - The Equal Credit Opportunity Act is a federal law requiring
creditors to make credit equally available without discrimination
based on race, color, religion, national origin, age, sex, marital
status or receipt of income from public assistance programs.
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The segregated trust
account in which escrow funds are held.
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A loan that allows
for fixed or level payments over the life of the loan, which
is normally 15 to 30 years. Each payment contributes toward
reducing principal until the loan is fully amortized. Payments
can be monthly or bi-weekly.
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A published interest
rate against which lenders measure the difference between the
current interest rate on an adjustable rate mortgage and that
earned by other investments (such as one - three - and five-year
U.S. Treasury security yields, the monthly average interest
rate on loans closed by savings and loan institutions, and the
monthly average costs-of-funds incurred by savings and loans),
which is then used to adjust the interest rate on an adjustable
mortgage up or down.
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The percentage of the
appraised value (or the sales price, whichever is less) to the
loan amount of the property. Determines if an impound account
is required, the term of mortgage insurance, the down payment
and qualifying debt ratios.
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The fee charged
by a lender to prepare loan documents, make credit checks, inspect
and sometimes appraise a property; usually computed as a percentage
of the face value of the loan.
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Protection for lenders
against borrower default. Money paid to insure the mortgage
when the down payment is less than 20 percent of the appraised
value.
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A policy, usually
issued by a title insurance company, which insures a home buyer
against errors in the title search. The cost of the policy is
usually a function of the value of the property, and is often
bought by the purchaser and/or seller. Policies are also available
to protect the lender's interest.
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A written disclosure to
the borrower from the lender, required by Federal law, of the
mortgage terms (including the APR and other charges) after the
loan application is completed. The rights include a rescission
period. Also known as Regulation Z.
