An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate is initially fixed for a specific period, after which it resets periodically, typically annually, based on an index that reflects the cost to the lender of borrowing on the credit markets.
The Affordability Index is a measurement of housing affordability compiled by the National Association of Realtors® (NAR) and other organizations. It compares median income levels to the income required to purchase a median-priced home, providing insights into regional and national housing affordability.
Amortization refers to the process of paying off debt over a specific period of time through regular payments of principal and interest, ultimately resulting in the full repayment of the loan by the end of the term.
A blanket mortgage is a single mortgage that covers more than one parcel of real estate, often used by developers to finance multiple properties under a single loan.
Building and Loan Associations, also known as Savings and Loan Associations, are financial institutions that specialize in offering savings accounts and originating residential mortgage loans.
A Cash-Out Refinance allows homeowners to replace their existing mortgage with a new, larger loan, providing them with the difference in cash.
A charge-off in real estate refers to the portion of principal and interest recognized as a loss when a loan is deemed uncollectible. Lenders resort to charge-offs when they perceive that further collection efforts on a delinquent account will not be fruitful.
A collateralized mortgage obligation (CMO) is a type of security backed by a pool of mortgage loans that are structured into different classes, each with distinct maturities. CMOs, often using Real Estate Mortgage Investment Conduits (REMICs) as a standard investment vehicle, provide investors with specified periodic interest and principal payments.
A consolidation loan is a new loan that pays off more than one existing loan, generally providing easier repayment terms. It is often used to simplify multiple debts into a single monthly payment with a potentially lower interest rate.
A Convertible ARM is an Adjustable Rate Mortgage (ARM) that gives the borrower the ability to change the payment schedule to a fixed-rate at specific points during the loan term, commonly for a nominal fee, with an interest rate determined by the original loan agreement.
The Debt Coverage Ratio (DCR) is a key metric used in real estate to assess the ability of an income-producing property to cover its annual debt payments. It helps lenders and investors evaluate the risk associated with a property loan.
An Energy Efficient Mortgage (EEM) is a mortgage loan designed to help homebuyers finance energy-efficient improvements to reduce future utility costs.
The Farm Service Agency (FSA) is a federal agency under the U.S. Department of Agriculture that provides mortgage loans to rural property owners, including farmers and service providers to farmers and ranchers. These loans are typically issued at below-market interest rates and require borrowers to purchase stock in their local land bank association for additional security.
Federal subsidy recapture refers to the required repayment of a federal subsidy received on a mortgage loan if the property is sold or disposed of within a specified period, typically nine years.
Form 1098 is a form that lenders are required by the Internal Revenue Service to send to mortgage borrowers, showing the amount of interest paid during the past year.
Freddie Mac is a government-sponsored entity that purchases residential mortgage loans in the secondary market to provide liquidity, stability, and affordability to the U.S. housing market.
A Good Faith Estimate (GFE) is a vital document provided to mortgage applicants detailing the estimated costs associated with closing a loan. This disclosure is mandated under the Real Estate Settlement Procedures Act (RESPA) and must be given within three days of the loan application submission.
A Growing-Equity Mortgage (GEM) is a type of mortgage loan where the payment increases by a specific amount each year, with the extra payment amount applied toward reducing the principal balance, thereby shortening the loan's maturity period compared to a traditional fixed-payment mortgage.
The Homeowners Protection Act of 1998 regulates private mortgage insurance requirements, aiming to protect homeowners from unnecessary continued insurance payments when their loan-to-value ratio reaches certain thresholds.
The initial interest rate is the beginning rate applied to an adjustable-rate mortgage, typically set for an initial period before adjustments. It often acts as an introductory rate that may be lower than prevailing market rates.
The Interest Rate Reduction Refinance Loan (IRRRL) is a program offered by the Veterans Administration that allows eligible service members to refinance their existing VA loans to lower-interest, fixed-rate mortgages.
Loan servicing encompasses the administrative aspects of a loan from the moment the proceeds are disbursed to the borrower until the loan is paid in full. This includes the collection of principal, interest, and escrow payments, as well as handling defaults and foreclosures, if necessary.
Loan terms refer to the major requirements and conditions of a loan agreement, including aspects such as interest rates, repayment schedule, fees, and other obligations set by the lender and agreed upon by the borrower.
The locked-in interest rate is a promise from the lender to provide a specific interest rate for a mortgage or loan, valid for a predefined period, regardless of market rate fluctuations during that period.
A mortgage banker originates, sells, and services mortgage loans, playing a crucial role in the real estate financing landscape by facilitating access to home loans and managing mortgage-backed securities.
A mortgage discount refers to an initial amount deducted by lenders from the principal of a loan, often represented in terms of 'points.'
Mortgage insurance is a protection for the lender in the event of borrower default, covering a portion of the amount borrowed to mitigate risk.
Mortgage Insurance Premium (MIP) is a fee paid by a borrower to obtain mortgage insurance on a mortgage loan, which protects lenders against losses if the borrower defaults. This fee can be paid as a lump sum at the time of loan closing or as a periodic amount included in the monthly payments, or both.
A mortgage-backed security (MBS) is a type of financial instrument that is secured by a pool of mortgage loans, offering investors income streams derived from these mortgages.
Packed deals are mortgage loans that include excessive fees in the balance owed, which might be potentially illegal due to regulations in certain jurisdictions.
Personal liability refers to an individual’s legal responsibility for a debt. In most mortgage loans on real estate, personal liability means that the borrower is accountable not only for the property but also for the repayment of the debt itself. Distinguishing it from nonrecourse loans and enhanced by additional clauses like the exculpatory clause, this concept is critical in financial and real estate transactions.
Prepayment penalty is a fee that some lenders impose on borrowers who pay off a loan early, helping the lender recover some of the interest they would have earned if the loan went the full term.
Understanding the conditions and implications of a Private Mortgage Insurance (PMI) default can prevent homeowners from stakeholders from encountering unwanted financial hardships. Private Mortgage Insurance (PMI) is an insurance provided by private companies on conventional loans, ensuring lender protection in case of borrower default, especially when higher loan-to-value ratios are involved.
The Real Estate Settlement Procedures Act (RESPA) is a federal law intended to provide greater transparency and knowledge to consumers about real estate transactions. It stipulates how mortgage lenders must treat applicants for federally-related real estate loans on properties containing 1–4 dwelling units. RESPA aims to eliminate unnecessary fees and ensure borrowers receive pertinent information to facilitate informed comparison shopping.
Recasting is the process of adjusting a loan arrangement, often to prevent default, by extending maturity or changing the interest rate.
A Real Estate Mortgage Investment Conduit (REMIC) is an entity used to pool mortgage loans and issue mortgage-backed securities, offering benefits such as tax advantages and liquidity to the mortgage market.
Savings and Loan Associations (S&Ls) are depository institutions that specialize in originating, servicing, and holding mortgage loans, primarily on owner-occupied residential property.
Servicing in real estate refers to the administration of a mortgage loan, encompassing activities such as billing, payment collection, and filing reports. This can also extend to loan analysis, default followup, and managing tax and insurance escrow accounts. Typically, mortgage bankers perform these tasks for a fee after the loans are sold to investors.
A silent second mortgage is a secondary loan placed on an asset without the knowledge of the primary lender. This practice is common in charitable organizations for down payment assistance or fraudulently to procure higher loan values.
Table funding refers to the practice of originating mortgage loans using a lender's internal capital until these loans are packaged together and sold in the secondary market. This process enables the lender to recoup capital, allowing continued lending activities.
A teaser rate is an initial lower interest rate offered on an adjustable-rate mortgage to entice borrowers, which eventually adjusts to the fully indexed rate.
A term mortgage is a type of mortgage that matures, or comes due, after the lapse of a pre-agreed-upon period of years, typically ranging from one to ten years.
An upside-down mortgage occurs when the balance of a mortgage loan is greater than the value of the property securing the loan. Homeowners with such mortgages have negative equity and cannot sell or refinance the property without incurring losses.
A Variable-Maturity Mortgage (VMM) is a long-term mortgage loan where the interest rate may be adjusted periodically, impacting the loan term while keeping the payment levels constant.
A Variable-Rate Mortgage (VRM) is a real estate loan in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate adjustments are based on predetermined benchmarks such as the prime rate or U.S. Treasury rates.
The practice of packaging numerous mortgage loans for sale in the secondary mortgage market by a financial institution or mortgage banker who originated the loans.
A Working Mortgage is a mortgage loan where payments are made more frequently than once a month, usually timed to align with the borrower's pay period. This payment structure typically accelerates the amortization of the loan, resulting in less interest paid over the life of the loan.
