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Mortgage GlossaryAbstract Of Title A written history of all the transactions bearing on the title to a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States Government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract. Adjustments Property taxes and/or utility bills and condominium common expenses, if any, that have been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor on closing. Amortization Number of years it takes to repay the entire amount of the mortgage. Amortization Periods A timetable for payment of a mortgage that shows the amount of each payment that should be applied to interest and principal and the remaining unpaid principal balance that will result from the application. (Source: FNMA Servicing Guide, Glossary) Anniversary Period Your anniversary period is the 12 month period that starts each year on your mortgage interest adjustment date or, if you have renewed or amended your mortgage, the effective date of your renewal or amendment. Application A form used to apply for a mortgage loan and to record pertinent information concerning a prospective borrower and the proposed security for the loan. Appraisal A process undertaken by an independent appraiser hired by the bank to determine the value of the property and whether it meets lending criteria. This value may or may not match the purchase price of the home. Appraised Value An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data. Bid A firm price given to obtain a contract to perform a specific project, which usually includes detailed specifications of the quantity and quality of materials to be used, and notes any exclusions. Blended Payments Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month while the interest portion decreases. The monthly payment does not change during the term. Breakage Costs A sum of money paid to compensate the lender for the prepayment of a closed mortgage in part or in full prior to maturity of the term. Cash Available Your housing affordability depends on the amount of money you have for the down payment, closing costs and a cash reserve. The more you can come up with, the less you will have to borrow. Cash for Transaction The amount you want to use toward closing costs (discount points and fees) and/or to reduce your loan balance. In situations where your loan balance is above the conforming amount, reducing the principal may allow you to get a lower rate. Cash required to close Funds needed by borrower to cover down payment, closing costs, Cash reserves, and prepaids. Cash Reserve Funds that the borrower will have remaining after all expenses (down payment, closing costs & prepaids) of the transaction have been paid. These reserve funds will be available in the event of any unexpected house-related or other expenses. Closed Mortgage A mortgage which cannot be prepaid, renegotiated or refinanced prior to the expiry of the term, except with compensation or breakage costs. Closing The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of funds necessary to the sale or loan transaction. Also referred to as settlement. Closing Costs The money paid by borrowers and sellers to effect the closing of a home loan. This normally includes an origination fee, discount points, title insurance, survey, attorney's fee, and more. Commitment A promise made by a lender to supply financing if certain conditions are met by the borrower. Conventional Mortgage A first mortgage - the principal amount of which cannot exceed 75% of the lesser of the appraised value of the property or the purchase price for the property. Contractor An individual responsible for having all the work described in the contract carried out. The contractor is responsible for having the appropriate insurances, for paying the suppliers and workers, and for supervising the quality of all work performed. Convertible Mortgage A fixed-rate mortgage which offers the same security as a closed mortgage, but which can be converted to a longer, closed mortgage at any time without penalty. Cost Applicable third-party closing costs, which include appraisal, credit report, title (a.k.a. lien search), recording fee, and closing/attorney fees. Credit Rating An expression of creditworthiness based upon present financial condition and past credit history. Credit Report A detailed account of the credit, employment and residence history of an individual used by a prospective lender to help determine creditworthiness. Credit reports also list any judgments, tax liens, bankruptcies or similar matters of public record entered against the individual. Current PITI This is an abbreviation for a monthly payment that includes principal, interest, taxes and insurance. In mortgage lending it is common for the monthly mortgage payment to include not only the principal and interest payment on the loan, but an escrow amount for real estate taxes and hazard insurance as well. Deed The document prepared by a lawyer or notary containing a detailed description of the property which transfers ownership from the vendor to the purchaser. This document is then registered against the title to the property as evidence of ownership. Default Non-payment by the borrower of installments due under the loan agreement as they become due, or failure to fulfill any other term or condition of the agreement. Deposit A sum of money paid by the purchaser on making an offer. Usually held in trust by the real estate broker or the vendor's lawyer or notary until the closing of the sale. Document Preparation This fee covers the expenses associated with the process of preparing the legal documents that you will be signing at the time of closing, such as the mortgage, note, and truth-in-lending statement. Down Payment The cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price, which is financed. Down Payment Percent The down payment percentage is calculated by dividing the amount you plan on putting down on the purchase of a home by the selling price. An example would be: If the sale price of the property is $100,000 and you plan on giving a down payment of $20,000, the down payment percent would be 20% ( 20,000 / 100,000 = .20 or 20%). Easement The right acquired for access to or over another person's property for a specific purpose, such as for a driveway or public utilities. This is referred to as "servitude" in the Province of Quebec. Equity The interest the owner holds in a property over and above all claims to the property. It is usually the difference between any outstanding mortgages and the market value of the property. Escrow/Attorney/Title A neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." You will either use an escrow company, an attorney or a title company depending on which state you reside in. E Estimate A statement of what a job will cost, made by a person or company willing and able to perform the work. A proper estimate should be made in writing and may outline some or all of the terms and conditions that apply. An estimate is less detailed and therefore less reliable than a quote or bid. Extra Payment Aside from the current amount of rent you pay and other bills, how much more can you afford to pay monthly? Filing Status Your income taxes as single, married, separated or Head-of-Household. Fire and Property Insurance Before closing date, the purchaser must have fire and property insurance arranged and in effect. Evidence of the insurance is required by the mortgage lender prior to advancing mortgage funds. Fixed-rate Mortgage The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months and 25 years - and cannot be renegotiated, except upon payment of breakage costs. Interest is calculated semi-annually, not in advance. Flood Check A survey conducted to determine whether a property is in a flood zone. Foreclosure A legal procedure whereby the lender obtains ownership of the property following default by the borrower by terminating all of the borrower's rights in the property covered by the mortgage. Gross Debt Service Ratio The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating and condominium fees. Holdback A portion of each payment that remains unpaid until such time as the job is completed to your satisfaction and/or any liens placed against your property by the contractor's debtors are discharged. Inspection The examination of the house for structural and other defects by an expert selected by the buyer. Interest Rate Interest Rate The rate of return the lender receives for permitting the borrower to use the mortgage money for a specified term. The interest rate is usually expressed as an annual percentage rate, calculated semi-annually, not in advance. Lender The individual, party or financial institution from whom money is borrowed. Also known as the mortgagee, in the case of a mortgage loan. Lending Guidelines Every loan program has different guidelines. Guidelines are used to meet Federal, State and Local laws and enforce minimum requirements by the lender. Guidelines ensure that prospective borrowers won't purchase a home that they won't be able to afford. Lien Laws Provincial laws which allow a contractor's unpaid suppliers and workers to make claims against your property for payments that are outstanding to them with respect to work or materials related to your project. Limiting Factor Limitations such as Income, Program Guidelines, Debt, and Cash that restrict your ability to get a higher loan amount. Line of Credit A type of credit which offers an individual immediate access to any portion or all of a pre-determined amount of cash upon demand. A line of credit may be either unsecured or secured with personal assets such as bonds, term deposits or equity on a home. A secured line of credit results in lower risk to the financial institution and a lower rate of interest to the individual. Loan Amount This is the actual amount borrowed from the lending institution including any financed fees, debt consolidation, etc. Loan Balance The current outstanding balance (the amount you owe) on your present mortgage loan. Loan Program Please choose a loan program from the drop down list, e,g. Fixed 15 Years, Fixed 30 Years, ARM Adjusts Yearly, etc? Loan Program 1- Heloc 10 year draw, 15 year Repay- you can draw money out of your Heloc Credit line for 10 years, and you have 15 years to pay for it in full. 2- Heloc 3 year draw, 10 year Repay- you can draw money out of your Heloc Credit line for 3 years, and you have 10 years to pay for it in full. Maximum Amount If you are unsure of what percentage you will be putting down on your home purchase, you may put the dollar amount you will be using as a down payment here. Maximum Points This is the maximum points you are willing to pay. Points are fees charged by a lender on the money borrowed. Typically the more points paid, the lower the rate of interest a customer pays on a given loan product. One point equals one percent of the loan amount. They are also sometimes referred to as discount points. Monthly Debt Please enter the combined debts for all borrowers. Enter the following: monthly credit card bills, car loans, car leases, student loans, alimony, etc. Do not enter your current rent or mortgage payment. Monthly Income Based on your earnings and debt, lenders calculate your approximate borrowing limit. Mortgage payments, property taxes, hazard insurance, etc. should not exceed 28-30% of your monthly gross income; these are known as housing expenses. All other debts such as car payments, student loans and credit cards are then added to your housing expenses. This sum should not exceed 36-38% of your monthly gross income. If it does, don't panic, it probably will only reduce the amount of mortgage for which you may qualify. Monthly Rent The amount you pay in monthly rent. Mortgage Default Insurance This insurance is available in all urban areas and is mandatory for borrowers with a down payment of less than 25%. The minimum permissible down payment is 10% (5% for eligible first-time home owners only). Mortgage Life Insurance Insurance under which the benefits are used to pay off the balance due on a mortgage upon the death of the insured borrower. The intent is to protect survivors from losing their homes. Mortgagee A lender who advances a mortgage to a borrower, where repayment of the loan is secured by a charge on real property Mortgage Tax A city, county, or state tax that is assessed in the purchase and/or sale of real estate. A real estate tax may also be assessed when financing is obtained. Mortgagor A borrower who gives title to, or a charge on, real property to a mortgagee to secure repayment of a mortgage loan. Notary An official authorized by law to attest and certify certain documents by his or her hand and official seal. Offer to Purchase A written contract setting forth the terms under which the buyer agrees to purchase a property. Upon acceptance by the seller, it forms a contract which determines the rights and obligations of the buyer and seller concerning the purchase and sale. It includes the legal and/or municipal description (this may consist of lot numbers as well as street address), purchase price, closing date, mortgage and terms of repayment, and lists specific items included or excluded from the sale. Open Mortgage A mortgage which can be prepaid at any time prior to maturity, without breakage costs. Original Term The term of a home loan is the number of years the home loan is amortized for. Home loans are generally amortized over 15, 20 or 30 years. Payment (P&I) Your monthly mortgage payment, including principal and interest, but excluding tax and insurance payments. Payoff Number of Years If you want to see what your payment would be in order to pay off your loan in a specified number of years, enter the payoff years here. Permits Formal authorization, usually from your municipality, that allows you to proceed with your renovations. Plans The technical drawings - or blueprints - of the project. Should include the specifications. Points Points are fees charged by a lender on the money borrowed. Typically the more points paid, the lower the rate of interest a customer pays on a given loan product. One point equals one percent of the loan amount. They are also sometimes referred to as discount points. Prepayment Option The right to pay specified amounts of the principal balance prior to the maturity date of the mortgage. Breakage costs may be payable when a prepayment option is exercised under a closed mortgage. Principal The amount of the loan owed to the lender at any specified time, not including interest. Processing The preparation and documentation of a mortgage loan application for underwriting. Property Value LTV or Loan to Value Ratio refers to the relationship between the unpaid principal balance of the mortgage and the property's appraised value (or sales price if it is lower). Quotation (see Bid) Rate The annual rate of interest on a loan. Real Estate Agent A licensed agent employed to negotiate the purchase and sale transaction between the buyer and the seller. Recording The act of entering or recording documents affecting or conveying interest in real estate in the recorder's office established in each jurisdiction. Depending on jurisdictional law and/or practice, until recorded, a deed or mortgage is not generally effective against subsequent purchasers of mortgages. (Source: GNMA Document Custodian Manual, Glossary.) Filing a document as public record is giving constructive notice to the world of the existence of the document and its contents. Servitude (see Easement) Specifications A detailed description of the scope of the work and the quality and quantity of materials to be used. The specifications should also clearly indicate how the work will be carried out and what the final appearance will be. The specifications should form part of the contract. Start Date The date you want to use as the start date for the amortization, usually the date you closed on your loan or today's date. Start Month The date you will begin adding an extra dollar amount to your regular monthly payments. Enter the payment number from 1 to 360 (e.g., if you will start paying extra principal at the start of year 5 of a 30 year loan, enter "49".) Sub-Escrow Are fees charged by the escrow company for allowing the borrower to be able to sign all the loan documents in the Escrow office instead of having to go to the lenders office. Subcontractor A tradesperson hired to do specific work such as plumbing, wiring or electrical work that the crew is unable to perform. The subcontractor takes instructions from, is paid by, and is responsible to the contractor. Survey (see Certificate of Location) A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvements. Tax Savings This is the amount of money you save in income taxes. You save this money because in most cases the interest you pay on your home loan is tax deductible! (Ask your tax advisor). Tax Service A fee collected to set up a third-party to monitor the borrower's property tax payments to ensure that the payments are made on time, and to prevent tax liens from occurring. Term The length of time during which the specific mortgage agreement is effective. When the term expires, the balance of the principal is either repaid in full or the mortgage is renegotiated at then-current market rates and conditions. The term of a home loan is the number of years the home loan is amortized for. Home loans are generally amortized over 15, 20 or 30 years. Termite Report A report that results from an inspection by a professional to determine if the property has termites. Title Right of ownership of property, and including evidence of such ownership. Title Binder Written evidence of temporary title insurance coverage that only runs for a limited time and must be replaced by a permanent policy. Title Exam An examination of records to ensure that the seller is the legal owner of a property and that there are no other liens/claims against the property. Title Insurance The process of determining the history of the ownership of a property in order to determine if the seller has legal ownership in the property they are selling. Title Insurance Endorsements This is an endorsement of insurance against losses that may result from claims of previously unknown ownership in insured property. Total Debt Service Ratio The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating and other outstanding loans and debts. Tradesperson (see Subcontractor) Underwriting The analysis of risk, the determination of the appropriate loan amount, and the setting of loan terms and conditions, based on the borrower's creditworthiness and the value of the real property that will secure the loan. Variable-rate Mortgage (Floating Rate) A mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest. Most variable-rate mortgages allow prepayment of any amount (with certain minimums) on any monthly payment date and usually without breakage costs. RateCapper is a variable-rate mortgage with a built-in safety net. It's designed to offer you the flexibility of a variable-rate mortgage plus security and protection from increased rates for a five-year term. Warehouse A closing-cost fee representing the lender's cost of holding a borrower's loan temporarily prior to being sold on the secondary mortgage market. Year Acquired The date you acquired your existing mortgage, used to determine your remaining balance. Zoning Laws Municipal laws prescribing the use of land for specific purposes, and the use to which buildings on the land may be put. |
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