First Bank Mortgage - Resource Center - Glossary of Mortgage Terms

Resource Center - Glossary of Mortgage Terms


A	B	C	D	E	F	G	H	I	J	K	L	M	N	O	P	Q	R	S	T	U	V	W	X	Y	Z	ALL

A
	Adjustable-rate mortgage (ARM) A mortgage that does not have a fixed interest rate. The rate changes during the life of the loan in line with movements in an index rate, such as the rate for Treasury securities or the Cost of Funds index.

	Amortizing loan Monthly payments are large enough to pay the interest and reduce the principal on your mortgage.

	Annual Percentage Rate (APR) A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules when calculating the APR, it provides consumers with a good basis for comparing the cost of loans, including mortgages.

	Application fee Fees that are paid upon application. May include charges for property appraisal and a credit report.

	Assumability When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

B
	Balloon payment A lump-sum payment that may be required when the plan ends.

	Buydown With a buydown, the seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period in an ARM. The seller may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages, not just ARMs.

C
	Cap, interest rate A limit on the amount your interest rate can increase. Interest caps come in two versions: periodic caps, which limit the interest-rate increase from one adjustment period to the next, and overall caps, which limit the interest-rate increase over the life of the loan. By law, virtually all ARMs must have an overall cap.

	Cap, payment A limit on how much the monthly payment may change, either each time the payment changes or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may lead to negative amortization.

	Closing costs Fees paid at closing, including attorneys fees, fees for preparing and filing a mortgage, fees for title search, taxes, and insurance.

	Conversion Clause A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Conversion is usually allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost.

D
	Discount In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

E
	Equity The difference between the fair market value of the home and the outstanding mortgage balance.

G
	Good faith estimate The Real Estate Settlement Procedures Act (RESPA) requires your mortgage lender to give you a good faith estimate of all your closing costs within 3 business days of submitting your application for a loan, whether you are purchasing or refinancing a home. The actual expenses at closing may be somewhat different from the good faith estimate.

I
	Index The index is the measure of interest-rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down. Some index rates tend to be higher than others, and some change more often. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where the index is reported.

	Interest The price paid for borrowing money, usually given in percentages and as an annual rate.

	Interest rate The periodic charge, expressed as a percentage, for use of credit.

M
	Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

N
	Negative amortization Occurs when the monthly payments do not cover all the interest owed. The interest that is not paid in the monthly payment is added to the loan balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan.

P
	Points One point is equal to 1 percent of the principal amount of your mortgage. For example, if the mortgage is for $65,000, one point equals $650. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

	Prepayment penalty Extra fees that may be due if you pay off the loan early by refinancing your home. These fees may make it too expensive to get out of the loan. If your loan includes a prepayment penalty, be aware of the penalty you would have to pay. Ask the lender if you can get a loan without a prepayment penalty, and what that loan would cost.

	Principal The amount of money borrowed or the amount still owed on a loan.