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Mortgage Definitions

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The following mortgage terms may be just a refresher course for you, or possibly an introduction to buying your first home. Whatever the case our Mortgage Specialists are available to help with any question(s) you may have.

Amortization Schedule

A schedule which shows the gradual repayment of debt through regular installments. The amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining principal balance after each payment is made.

Annual Percentage Rate (APR)

A measure of the total cost of credit (interest as well as other charges) expressed as a yearly percentage rate. Because all lenders should apply these rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

Closing

A meeting, typically held at a title company or attorney's office, where the borrower finalizes a sale or refinances a property by signing the mortgage documents, paying closing costs and other costs as applicable. Also called the “settlement.”

Discount Points

Fees paid by a borrower to a lending institution in order to obtain a lower interest rate. One point is equal to one percent of the loan amount.

Earnest Money Deposit

A deposit made by the potential homebuyer to show that he or she is serious about buying the house. The earnest money may be applied toward the down payment at closing. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer.

Escrow

The deposit of funds by the borrower to the lender in order to pay taxes and insurance premiums when they become due. Escrow could also be a deposit of funds to an attorney or escrow agent which are disbursed once certain requirements are met.

Hazard Insurance

Insurance coverage which compensates for physical damage to a property from fire, wind, vandalism or other hazards.

Home Inspection

A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. (Not to be confused with the appraisal of the property.)

Interest

A percentage rate used to calculate the monthly payment.

Loan-To-Value

The principal amount of the loan compared to the collaterals’ appraised value or sales price (whichever is lower) – usually a percentage.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Insurance

Insurance which is required for a loan-to-value ratio above 80% which insures the lender against loss caused by a mortgagor's default on a conventional mortgage. Mortgage insurance is issued by a private mortgage insurance (PMI) company. Depending on the type of mortgage insurance, the percentage of coverage will/may vary. For government loans such as FHA and VA, mortgage insurance is in the form of MIP for FHA loans and VA funding fee for VA loans.

Origination Fee

A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.

PITI

Abbreviation for Principal, Interest, Taxes and Insurance which make up your monthly mortgage payment.

Refinance

The process of paying off one loan with the proceeds from a new loan using the same property as collateral.

Title Insurance

Insurance to protect against any errors resulting from the title search or from any potential disputes that may arise over property ownership. Title insurance is required by the lender, but not required for the borrower, though it could be useful.

Title Search

A review of the public records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner. The title search also verifies there are no liens, overdue special assessments, other claims or outstanding restrictive covenants in the records, which would adversely affect the marketability or value of title.

Underwriting

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

 

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