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Cal Point Glossary

Home Resource Center Mortgage Glossary

Glossary of Mortgage Terms

At HMAC Team Cal Point Mortgage, we want you to feel comfortable making the decisions that get you into the home of your dreams. A big part of that is speaking the language. Below is a brief overview of mortgage vocabulary, including major loan types and other terms you will run into. A basic understanding of these terms will make you feel right at home working with HMAC Team Cal Point Mortgage loan officer.

 

In addition to getting in touch directly with your loan officer, you are always welcome to contact us at (714) 417-9966 or email us through our contact page.

AMORTIZATION

The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.

ANNUAL PERCENTAGE RATE (APR)

The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges.

APPRAISAL

A written estimate or opinion of a property’s value prepared by a qualified appraiser.

ASSUMPTION

The act of becoming responsible for the repayment of a loan not originally in your name.

BALLOON MORTGAGE

A mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.

BANKRUPTCY

When a debtor yields his or her assets to the bankruptcy court and thereby is relieved of the duty to repay unsecured debts. After claiming this provision of federal law, the debtor is discharged of existing unsecured debt; the unsecured creditors may not continue collection actions. Although they may not take additional action to collect from the debtor, those creditors holding deeds of trust or judgment liens are secured by the property. Not all debts may be discharged.

BROKER

A person who coordinates funding or negotiates contracts for a client but does not loan the money him- or herself.

BUY-DOWN

A situation in which the lender subsidizes the mortgage by lowering the interest rate. During the first few years, the loan payments are low, but they will increase when the funding expires.

CAP

For an Adjustable-Rate Mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.

CERTIFICATE OF TITLE

The attorney’s written opinion establishing the status of title for a property as reflected on the public records. The certificate does not address issues not on record and offers no protection unless the writer of the certificate was negligent.

CLOSING

Also called settlement, a meeting between the buyer, seller and lender and/or their agents during which the property and funds legally transfer.

CLOSING COSTS

Expenses that fall above the price of the property that are incurred by buyers and sellers in the process of transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing typically is about 3 percent to 6 percent of the mortgage amount. Closing costs will vary according to the area of the country; your CalPoint Mortgage loan officer is able to provide estimates of closing costs for you.

CLOSING DISCLOSURE

The closing disclosure combines and replaces the Final TIL, Itemization of Amount Financed, and HUD Settlement Statement. The closing disclosure is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.

COLLATERAL

Property assured to secure a loan.

COMMITMENT

A pledge by a lender to provide a loan on specific terms or conditions to a borrower.

CREDIT REPORT

A report with documentation of the borrower’s credit history and current status of credit.

DEBT-TO-INCOME RATIO

The relationship between a borrower’s total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.

DEED

The written document conveying real property. The original piece of paper is not needed to convey title in the future once recorded at the county recorder’s office.

DEFERRED INTEREST

The amount of interest that is added to the principal balance of a loan when the contractual terms of that loan allow for a scheduled payment to be made that is less than the interest due.

DELINQUENCY

Failure to make payments in a timely fashion. Foreclosure is a possible result.

DEPARTMENT OF VETERANS AFFAIRS

An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.

DEPRECIATION

A decline in property value.

DISCOUNT POINT (or POINT)

A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.

DOWN PAYMENT

Money paid up front to make up the difference between the purchase price and the mortgage amount. Down payments usually are 5% to 20% of the sales price on conventional loans.

EARNEST MONEY

Money paid by a buyer to a seller to cement a transaction or ensure payment. Usually between 1 to 5% of the purchase price, the amount becomes a part of the down payment if the offer is accepted. The money is returned to the borrower if the offer is rejected. If the borrower cancels the transaction, the entire amount may be forfeited.

EASEMENT

The right to use the land of another for a specific limited purpose.

ENCROACHMENT

The physical intrusion of a structure or improvement (such as a fence) on the land of another.

EQUITY

The owner’s interest in a property, calculated as the current fair market value of the property less the amount of existing liens.

ESCROW

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)

Also known as “Freddie Mac,” the Federal Home Loan Mortgage Corporation provides a secondary market for mortgage financing by purchasing conventional loans.

FEDERAL HOUSING ADMINISTRATION (FHA)

A division of the Department of Housing and Urban Development. Its main purpose is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)

Also known as “Fannie Mae,” this secondary mortgage institution is the largest single holder of home mortgages in the United States. FNMA purchases VA, FHA, and conventional mortgages from primary lenders.

FINAL TIL

This statement contains the finalized information regarding the annual percentage rate, the finance charge, the amount financed, and the total payments required for the loan.

FIXED RATE MORTGAGE

Throughout the term of the loan, this mortgage interest rate will remain the same for the original borrower.

FLOAT DOWN OPTION

The float down option gives you the ability to reduce your interest rate if the market improves after you lock in your rate. The float down option is applied to the interest rate only and is based on the initial lock period; it may be utilized with all conforming loans – both government and conventional.

FORECLOSURE

Also known as a repossession of property, this occurs when the lender or the seller legally forces a sale of a property because the borrower has not met the terms of the mortgage.

GUARANTY

The pledge of one party to pay a debt or fulfill a responsibility contracted by another if the original party neglects to pay or perform according to terms of the contract.

HAZARD INSURANCE

When an insurance company covers the insured from loss or damage to the property resulting from issues, such as fire, windstorm and the like.

HUD

The U.S. Department of Housing and Urban Development. Established in 1965, HUD develops national policies and programs to address housing needs in the U.S. One of the main missions of HUD is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws.

INDEX

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.

LIBOR

LIBOR stands for the London interbank offered rate, a daily interest rate benchmark used to determine interest payments on almost all adjustable-rate financial products, including ARMs (adjustable-rate mortgages).

LIEN

A claim against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.

LIFETIME CAP

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.

LOAN ORIGINATION FEE

This pays the administrative costs of processing the loan. Usually, it is expressed in points with one point being 1% of the mortgage amount.

LOAN-TO-VALUE RATIO (or LTV RATIO)

The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property’s value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

LOCK-IN

The lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time through this written agreement. This typically specifies the number of points to be paid at closing as well.

LOCK-IN PERIOD

The time period during which the borrower is guaranteed an interest rate by the lender.

MARGIN

For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

MARGIN

For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

MARKET VALUE

The lowest price a seller would accept and the highest price that a buyer would pay on a property. The price a property could be sold for at a given time could differ from the market value.

MORTGAGE

A voluntary lien filed against a property to secure a debt, usually a loan.

MORTGAGE BANKER

A company that originates and services mortgages exclusively for resale in the secondary mortgage market (to other lenders and investors). Certain mortgage bankers are subsidiaries of depository institutions or their holding companies but do not receive money from individual depositors.

MORTGAGE BROKER

An independent professional or company that brings together borrowers and lenders for loan origination purposes, both in residential and commercial circumstances. Mortgage brokers typically charge a fee or require a commission for their services.

NET EFFECTIVE INCOME

The borrower’s gross income minus federal income tax.

MORTGAGE INSURANCE (MI)

Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. MI typically is required if the borrower’s down payment is less than 20% of the purchase price.

MORTGAGE INSURANCE PREMIUM (MIP)

Insurance provided to the lender from the Federal Housing Administration (FHA) to cover an instance of the borrower defaulting on the mortgage. Borrowers pay one-half percent each month on FHA insured mortgage loans.

NEGATIVE AMORTIZATION

When a borrower’s monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest then is added to the unpaid balance of the loan. Negative amortization can cause home buyers to owe more than the original amount of the loan.

NET EFFECTIVE INCOME

The borrower’s gross income minus federal income tax.

NON-ASSUMPTION CLAUSE

A portion of a mortgage contract prohibiting the assumption of the mortgage without the approval of the lender beforehand.

ORIGINATION FEE

Lenders charge the borrowers this fee to cover the services needed to take a loan application, process it, and prepare it for closing; it is typically computed as a percentage of the face value of the loan.

PAPER TRAIL

Copies of all paperwork to cover the lender should the borrower default on the loan. Depending on the lender, this may be required from the borrower. It can include copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.

PITI

An acronym for the four primary components of a monthly mortgage payment: principal, interest, taxes, and insurance (PITI).

PRE-PAYMENT

The ability established in the mortgage agreement for a borrower to make advanced payments before their due date.

PRE-PAYMENT PENALTY

A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principal balance.

PREPAID EXPENSES

Needed to create an escrow account or to adjust the seller’s existing escrow account; taxes, hazard insurance, private mortgage insurance and special assessments can be included in the prepaid expenses.

PRE-QUALIFICATION

A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.

PRINCIPAL

The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI)

Insurance coverage required for expenses incurred if the borrower defaults on the loan. Borrowers typically are required to carry private mortgage insurance when they have a small percentage of a down payment to offer. An initial premium payment of 1% to 5% of your mortgage amount will be required. Private mortgage insurance also may necessitate an additional monthly fee depending on the borrower’s loan structure.

RECORDING FEES

A lender is paid this money for recording a home sale with the local authorities; this makes it part of the public records.

REFINANCE

Acquiring a new mortgage loan on a property already owned; this usually is done to replace an existing loan on the property (often to benefit from a lower interest rate).

RESCISSION

The cancellation of a contract. In regard to mortgage refinancing, by law the homeowner has three days to cancel the new loan if the agreement uses equity in the home as security.

RESPA

Real Estate Settlement Procedures Act. Through this, lenders are obligated to disclose information to potential customers throughout the mortgage process. By doing so, it protects borrowers from abuses by lending institutions. RESPA requires lenders to fully inform borrowers about all closing costs, lender servicing, escrow account practices, and business relationships between closing service providers and other parties to the transaction.

SECOND MORTGAGE

A mortgage that has a lien position subordinate to the first mortgage.

SETTLEMENT AGENT

The party involved in completing a transaction between a buyer and seller. This is done through the transfer of securities to the buyer and the transfer of cash or other compensation to the seller.

SIMPLE INTEREST

Interest calculated only on the principal balance.

SURVEY

Conducted by a registered land surveyor, this measurement of land shows the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

TITLE

Indicates ownership of property. A property owner is said to be “in title.”

TITLE INSURANCE

Coverage against loss or damage resulting from an error in title ownership to a particular piece of property. Title insurance protects against inaccuracies made during a title search as well as issues that could not be known or discovered through the public records such as missing heirs, mistakes, fraud and forgery.

TITLE SEARCH

When a title company or title attorney researches municipal records to verify the legal ownership of a property.

UNDERWRITING

A step in the loan process where it is decided if a loan will be provided to a potential homebuyer; this decision is based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA (or U.S. DEPARTMENT OF VETERANS AFFAIRS)

A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.

VERIFICATION OF DEPOSITS (VOD)

The borrower’s financial institution signs this document to verify the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT (VOE)

The borrower’s employer signs this document to verify his/her position and salary.

Related Information

Frequently asked questions for the general home buying process and the new disclosure rule.

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