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Glossary

Glossary of Terms*

ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

Amortization: A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

Escrow: Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.

Escrow Account: A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Escrow Disbursements: The distribution of escrow money to pay real estate taxes, mortgage and hazard insurance, and other property expenses.

Escrow Payment: When your mortgage servicer withdraws money from your escrow account to pay property taxes and insurance.

FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person’s credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).

FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

FHA Mortgage: A mortgage that is insured under the Federal Housing Administration. You may need this type of mortgage if you do not have enough money to meet the mortgage provider's down payment requirements.

First Mortgage: The mortgage with first priority if the loan is not paid.

Fixed-Rate Mortgage (FRM): A mortgage with payments that remain the same throughout the Life of the loan because the interest rate arte other terms are fixed and do not change.

Fully Amortized ARM: An adjustable-rate mortgage (ARM) with monthly payments that are enough to pay down the full loan amount, including the principal and interest over the amortization term.

Initial Interest Rate: This is the rate on an adjustable-rate mortgage (ARM) that is displayed in the beginning of the origination process. The initial interest rate applies to your loan for a set period of time. After the set time is closed, the interest rate adjusts to an index value that is higher than the initial rate.

Interest Accrual Rate: The rate of interest that is added to the principal of a loan between payments of the interest.

Interest Rate: The amount of interest charged on a monthly loan payment, expressed as a percentage.

Late Payment Charges: The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Loan-to-Value (LTV) Percentage: A term used by mortgage providers to show the ratio of a loan to the value of a purchased property.

Loan Officer: A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.

Loan Origination Fee: A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Principal: The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money.

Principal Balance: The amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Principal, Interest, Taxes, and Insurance (PITI): The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Refinancing: Paying off one loan by obtaining another: refinancing is generally done to secure better loan terms (like a lower interest rate).

Standard Payment Calculation: Computes an estimate of the size of your monthly loan payments against the principal and interest rate of your loan.

*Glossary source: U.S. Department of Housing And Urban Development (HUD.GOV) except Escrow Disbursements, Escrow Payment, FHA Mortgage, Fully Amortized Arm, Initial Interest Rate, Interest Accrual Rate, Loan-to-Value (LTV) Percentage and Standard Payment Calculation

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