Glossary Of Common Financal Terms

100% financing – You don’t have to put any money down because the lender supplies 100% of the money you need to purchase the home.

Acceleration - The lender can demand the amount still owing on the mortgage due immediately if you should default on your home loan.

Adjustable Rate Mortgage – The interest rate of the mortgage is based on the current interest rate, which changes according to market conditions.

Adjustment Date – The date of adjustment on an adjustable rate mortgage.

Amortization – The length of time that you have to pay the mortgage in full.

Amortization Schedule – the schedule of payments on the mortgage, including the amount due and the date that by which you have to make the payment.

Annual Percentage Rate – the rate of interest that is charged on the mortgage each year

Appraisal – the estimated fair market value of the home. Banks need this in order to approve your mortgage.

Assumption – a contract in which a buyer takes over the payments of an existing mortgage. This saves the buyer money in closing costs and higher interest rates.

Balloon mortgage – a mortgage with fixed payments for a short period of time with the remaining amount due in full after 5 or 7 years.

Below Prime Mortgage – a mortgage where the interest rate is below the prime lending rate of the bank

Bi-weekly mortgage – a loan for which you have to make payments every two weeks, rather than once a month. This amounts to making 26 payments a year instead of 12.

Blanket mortgage – a mortgage for two pieces of property with one of the properties being collateral for the other.

Broker – a individual that helps you get a mortgage by taking your application and offering it to different banks. He/She does not loan you the money and receives a fee for the services.

Buy-down –the lender or builder will often subsidize the interest on the loan for the first year or two helping to lower the mortgage payments. After the term of the subsidy expires, the interest reverts to the normal level

Capital Gain – the difference between the buying price and selling price of a home. You have to pay taxes on the capital gain.

Cash out refinance – refinancing the home for an amount that exceeds the remaining balance of the mortgage.

Certificate of eligibility – a certificate that veterans have showing they are eligible for mortgages and home loans offered at discounted prices for veterans

Closing costs – additional costs involved in a mortgage, such as appraisal fee, title search, origination fee, lawyer’s fee, insurance and taxes

Commitment - a written agreement between the lender and the buyer stating the specific terms of the mortgage for a future date

Compound Interest – interest charged for unpaid interest as well as the interest on the unpaid balance of the mortgage

Contingency – a condition that has to be met before the mortgage is approved, such as selling one home before buying another

Conforming loan – this type of loan cannot exceed $359, 650 and must conform to credit history and debt guidelines

Construction loan – a mortgage to a home rather than buy one already built. The payments are usually made to the builder in periodic instalments.

Contract Sale – a contract between the seller and buyer to pass over the title to the property after the sale goes through

Conventional loan – a mortgage that does not have the guarantee of the FHA. It cannot be higher than $359,650

Convertible adjustable rate mortgage – with a conversion fee, a homeowner can switch a mortgage from a fixed rate mortgage to an adjustable rate mortgage

Co signer - a person who signs the home loan with you stating that if you default on the loan, he/she will take over the payments

Credit report – a report detailing your credit history available from one of three credit reporting agencies. The lender will need to have these to ensure that you have a good credit rating and that you are a good risk for repaying the loan

Default – a failure to make the mortgage payments as agreed to in the terms of the mortgage

Down payment – the amount of money the borrower has to pay to make up the difference between the amount of the mortgage and the actual cost of the home

Due on sale clause – a clause that states the borrower has to repay the mortgage in full if he/she sells the home before the mortgage is repaid

Earnest Money – the amount of money given to the seller when the borrower accepts the offer of a price

Equity – the difference between the amount owing on a mortgage and the value of the home

Escrow – an account that the borrower pays into for paying property taxes on the home

FHA loan – a loan that is insured by the Federal Housing Administration for qualified buyers. The FHA does not issue the loan.

FHA mortgage insurance – usually 1.5% of the amount of the home loan to insure the loan and is paid at the time of the closing. After that, you have to pay monthly instalments of 0.5% per year of the unpaid balance until there is 22% equity built up in the home

First Mortgage – a loan for the principal amount of money needed to purchase a home

Fixed rate mortgage – the interest rate remains fixed for the term of the mortgage

Graduated Payment Mortgage – a mortgage where the payments increase gradually until they reach an agreed upon amount

Interest Only Loan – a mortgage where you only pay the interest for a certain amount of time. No payments have to be made on the principal during this time.

Jumbo loan – a mortgage that exceeds $359,650 that carries higher rates of interest

Loan Servicing – a process of sending out monthly statements, managing escrow accounts and paying property taxes

Lock In – the borrower chooses to lock the mortgage into a specific interest rate for a certain period of time

Low Doc Loan – a mortgage where the borrower does not have to submit a lot of documents to verify income. It usually requires a 20% down payment and higher rates. You also need an excellent credit rate to qualify for this.

Mortgage Insurance – an insurance on the amount of the mortgage when less than 20% is paid for the down payment

Mortgagee – the borrower

Mortgagor – the bank or other lending institution approving the mortgage

Negative Amortization – a mortgage in which the monthly payment is not enough to cover the interest. The interest owing is added to the unpaid balance of the mortgage

Origination Fee – the fee that the lender charges to prepare the documents, get the appraisal done, obtain a credit report and do a title search

Points – the amount of the prepaid interest that the lender charges and has to be paid at the time of closing

Prime rate – the lowest interest rate a lender charges on a home loan

Pre approval – having approval for a mortgage before you start looking for a home

Principal – the amount of the money you owe on the mortgage – it does not include the interest

Refinance – getting a new mortgage on your home and cancelling out your existing mortgage

Reverse mortgage – a home equity loan for seniors that lets them borrow against the equity built up in the home that doesn’t have to be repaid until they sell the home

Second Mortgage – a second loan for the amount of the down payment

Security – this is also called collateral and is usually the home. If you do not repay the mortgage, the lender can foreclose on the loan and take the home

Underwriting – the decision whether to approve a mortgage based on credit history and income, as well as other factors

VA Mortgage – a low cost or no interest loan offered to veterans of the Armed Forces

Wraparound mortgage – when an existing mortgage is combined with another loan with an interest rate lower than one loan but higher than the other

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