IMPORTANT NOTICE REGARDING THESE MORTGAGE TERMS AND MORTGAGE DEFINITIONS
The mortgage terms and mortgage definitions that follow are meant to give simple, informal meanings for mortgage words and mortgage phrases you may see on this mortgage Web site that may be unfamiliar to you. The specific meaning of a mortgage term or mortgage phrase will depend on where and how it is used. The mortgage terms and mortgage definitions that follow have no binding effect for purposes of any contracts or other transactions. We offer mortgage terms and mortgage definitions here in the hope they will provide helpful basic information.
A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens against it) the grantee may hold the grantor liable.
Government National Mortgage Association (GNMA, Ginnie Mae)
Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
A specified period (usually 10 or 15 days) after a regular loan payment due date during which no late charge or other penalty is assessed
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
Graduated Payment Mortgage (GPM)
A mortgage or deed or trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer’s earnings increase.
The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.
A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.
An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.
A law in which the owner and his family can not be forced into sale because of bad credit or debits that may have incurred.
The assessed value of a owner-occupied residential property may be reduced by the amount of the exemption for the purposes of calculating property tax. Available in some states.
Home Warranty Plan
An insurance policy which typically covers failures in the plumbing, electrical and heating systems and breakdowns of major appliances. The policy holder pays a deductible to have the item repaired or replaced during the term of the warranty.
Housing and Urban Development
The U.S. government agency that administers FHA, GNMA and other housing programs.
Federal, state or local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings, as opposed to building codes, which govern new construction.
A form settlement (closing) statement required by HUD where federally related mortgages are being made on residential properties. It is a balance sheet showing the source of funds and the distribution of funds in connection with the purchase and/or mortgaging of residential property.
Improvements are buildings, additions to buildings, parking lots, decks, sidewalks, wells and/or other permanently attached additions to land.
An impound account is an account established by the lender to pay a borrower’s tax and insurance costs. The borrower’s monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender’s investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges.
A property which is owned or developed specifically to produce income for its owner.
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.
Indexed Rate – The sum of the published index plus the margin. For example, if the index were 9 percent and the margin 2.75 percent, the indexed rate would be 11.75 percent. Often, lenders charge less than the indexed rate the first year of an adjustable rate mortgage (ARM).
Ingress and Egress
The ability to pass through a piece of land however not allowing to park on it.
Initial Interest Rate – Starting rate of an adjustable-rate loan.
For savings and checking accounts, interest is the payment by a financial institution to customers for the use of their funds. For loans, interest is what a borrower pays a lender over and above the amount of the loan, for the use of the money.
For savings and checking accounts, the annual rate of interest paid on an account, which does not reflect compounding. For loans, a percentage that is applied to the amount of a loan to determine the charges for the use of the money.
Interest Rate Cap
In most cases, the maximum rate of interest that may be charged on an adjustable rate mortgage loan over the life of the loan
When two or more people agree to take on the same obligation (such as a loan), they may each be responsible for a certain portion of the obligation or they may each be responsible for the entire obligation. When the contract states that liability is “joint and several”, it means that all parties together are responsible for the obligation (“joint”) but also that each party individually is responsible for the entire obligation on their own (“several”). The creditor may sue all of them or just one for the debt.
When two or more persons are equally owners of some property. The unique aspect of joint tenancy is that as the joint tenancy owners die, their shares accrue to the surviving owner(s) so that, eventually, the entire share is held by one person. A valid joint tenancy is said to require the “four unities”: unity of interest (each joint tenant must have an equal interest including equality of duration and extent), unity of title (the interests must arise from the same document), unity of possession (each joint tenant must have an equal right to occupy the entire property) and unity of time: the interests of the joint tenants must arise at the same time.
A lien on the property of a debtor resulting from the decree of a court.
A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.
A mortgage that is subordinate to any of the previous mortgages on the same property. If the borrower defaults (see Breach) on the mortgage and his property is sold, the proceeds of the sale would go to the first mortgage lender to reimburse him for the unpaid mortgage debt interest, and any legal expenses. The junior mortgage lender would receive the remainder, if any, of the proceeds. A second mortgage is a junior mortgage. (see Second Mortgage)
A type of instrument used in connection with the sale of real estate. It differs from a mortgage in that title to the land remains with the seller until the buyer has completed the payments, though possession rests with the buyer. Specifically, a land contract is the instrument that conveys the deed of land from one person to another upon full payment of the stated purchase price.
Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.
A person to whom a lease is granted; the user of the asset.
A landlord under a lease (the owner of the property being rented).
A legal claim against property that must be satisfied When the property is sold.
Lifetime Rate Cap
In an adjustable rate mortgage (ARM), it limits the amount that the interest rate can increase or decrease over the life of the loan. See also caps.
A pending lawsuit; in real estate, the constructive notice filed in public records that a legal dispute exists over a piece of property.
Livery of Seizin
Under common law, the process of transferring title
The first step in obtaining a loan. The loan application tells the lender how much the applicant wishes to borrow and how the loan proceeds will be used. An application typically lists personal income and assets, provides a work history and authorizes the lender to obtain a credit report.
Loan origination fee or points
The processing of a mortgage application is known as loan origination. When a mortgage loan is originated, a loan origination fee, or transfer fee, is charged by most lenders to cover the expenses involved in generating the loan. These include the loan officer’s salary, paperwork and the lender’s other costs of doing business.
Loan to Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the value of the property, expressed as a percentage. Value is defined as the lower of sales price or appraised value of the property.
A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
The conditions that specify how a loan will be repaid and a borrower’s obligations until the loan is repaid. Some common loan terms include interest rate, fees charged and the length of the loan.
Lock or Lock-In – Lender’s guarantee that the mortgage rate quoted will be good for a specific amount of time. The home buyer usually wants the lock to stay in effect until the date of the closing.
Lock-and-Float – Rate programs offered by companies that allow borrowers to lock in the current interest rate on a mortgage for a specified period of time, while also letting them “float” the rate down if market conditions improve before closing.
Low-Down Mortgages – Mortgages with a low down payment, usually less than 10 percent. Fannie Mae and Freddie Mac design loan programs that spell out a set of standards for lenders. In recent years these government-chartered agencies have made low-down mortgages more available through programs such as Fannie Mae’s Flexible 97 and Freddie Mac’s Alt 97. The “97” refers to the amount of the home’s value a lender will cover in a mortgage, leaving a low 3 percent down payment required.
The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 2.75 added to a 4 percent index establishes an adjusted interest rate of 6.75 percent.
The highest price a willing buyer would pay and a willing seller accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a given time (market price),
The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.
A legal document that pledges a property to the lender as a security for payment of a debt.
Mortgage Backed Security (MBS)
A security backed by mortgage pools.
A lender that originates, closes, services and sells mortgage loans to the secondary market.
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
Mortgage Insurance (MI)
Insurance written by an insurance company that is designed to protect the mortgage lender against a potential loan default. It is usually required for loans with a loan-to-value (LTV) ratio greater than 80%.
A loan whose repayment is secured by a lien against real property.
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.