Adjustable or Variable
Rate Mortgage (ARM or VRM) - a mortgage loan in which the interest rate varies
in accordance with changes in a specified index, and may result in changed monthly
payments. For further information, refer to the "Consumer Handbook on Adjustable
Adverse Action -
a denial of a loan in an amount and on terms acceptable to the borrower.
Annual Percentage Rate
(APR) - the actual cost of credit to the borrower, including interest and
certain other charges, expressed as a yearly rate and calculated over the life
of the loan. A guide to compare the cost of loans between lenders.
Application - an
oral or written request for an extension of credit. Usually a printed form on
which the lender collects credit, income and debt information about a prospective
borrower, plus facts about the property being used to secure the loan.
Appraisal - an inspection
of the property to assure that its market value exceeds the amount of the loan.
A fee may be charged for the appraisal.
Borrower - the person,
sometimes referred to as the mortgagor, who is applying for a mortgage loan.
Closing - the time
and date set for the transfer of the property from seller to buyer and/or the
signing of the loan documents.
Closing or Settlement
Costs - fees, in addition to the purchase price of the property, charged at
closing, which include but are not limited to attorney's fees, title search and
insurance, survey charges and fees to record the deed, mortgage and other documents.
For further information, refer to the booklet entitled "Settlement Costs".
- a lender's written offer to grant a mortgage loan outlining the terms, the amount
of the loan, the interest rate and any other conditions. It can also serve as
a communication of the lender's decision on the borrower's application.
Counter-Offer - an
offer made by the lender to grant credit other than in the amount or terms requested
by the applicant.
Escrow Account -
money collected in advance by the lender, usually on a monthly basis, for the
payment of real estate taxes, betterments and/or insurance.
Fixed Rate Mortgage
- a conventional mortgage loan with a set interest rate and equal monthly payments
for the entire term of the loan.
Lender - the entity
or person, sometimes referred to as the mortgagee, who offers the mortgage loan.
Lien - a legal claim,
granted by contract or by a court, against property. A mortgage is one kind of
- the percentage comparison between the unpaid principal balance of the mortgage
and the sales price or the appraised value of the property, whichever is lower.
Mortgage - a lien
placed by the lender on the borrower's property and removed when the note has
been paid in full. If the borrower defaults on the note, the lender can sell the
property to satisfy the debt.
Note - the borrower's
legally binding written promise to repay a debt to a lender by a specified date.
Point - an often
non-refundable sum of money, equal to one percent of the principal amount of a
mortgage, charged by the lender to cover certain costs of making a loan. The number
of points that may be charged is limited by law.
Private Mortgage Insurance
- protection for lenders against borrower default. Paid for by the borrower and
usually required when the down payment is less than 20% of the purchase price
or appraised price, whichever is lower.
Rate Lock Agreement/Interest
Rate Commitment - a written agreement by which a lender will hold an interest
rate on a mortgage for a specified period of time. The terms and conditions of
a rate lock agreement vary from lender to lender.
(RESPA) Real Estate Settlement
Procedure Act - a federal law that requires a good faith estimate of closing
costs required to be given on certain first mortgages. For further information,
refer to the booklet entitled "Settlement Costs".
Secondary Mortgage Market
- investors who purchase residential mortgages originated by lenders.
Title Insurance -
protection against loss due to defects in the title that were not uncovered in
the title search and not listed in the title report. Both the lender and the borrower
may purchase title insurance's to protect their own interests.
Title Search - an
examination of legal records to check the validity and completeness of the title
to the property. The title search should uncover any liens, overdue assessments,
or other claims against the property.
- Federal and State law that require lenders to provide borrowers with full disclosure
of the true cost of a loan and easy-to-understand information about the annual
percentage rate and terms of the loan.