MORTGAGE GLOSSARY TERMS I-P

Income Property

Real estate developed or improved to produce income.

Index

A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.

In-file Credit Report

An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

Inflation

An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

Initial Interest Rate

The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."

Installment

The regular periodic payment that a borrower agrees to make to a lender.

Installment Loan

Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

Insurable Title

A property title that a title insurance company agrees to insure against defects and disputes.

Insurance

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance Binder

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Instanced Mortgage


A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

Interest

The fee charged for borrowing money.

Interest Accural Rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

Interest Rate

The rate of interest in effect for the monthly payment due.

Interest Rate Buydown Plan

An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.

Interest Rate Ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment Property

A property that is not occupied by the owner.

IRA (Individual Retirement Account)

A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

Joint Tenancy

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Judgment Lien

A lien on the property of a debtor resulting from the decree of a court.

Judicial Foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo Loan

A loan that exceeds Fannie Maes mortgage amount limits. Also called a nonconforming loan.

Late Charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease

A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Leasehold Estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Lease-purchase Mortgage Loan

An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.

Legal Description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Liabilities

A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability Insurance

Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

Lien

An encumbrance against property for money due, either voluntary or involuntary.

Lifetime Payment Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

Lifetime Rate Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap, interest rate ceiling and interest rate floor.

Line of Credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

Loan Commitment

See commitment letter.

Loan Origination

The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan to value ratio (LTV)

The unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

Lock-in

A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Lock-in Period

The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

Margin

The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

Master Association

A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.

Maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Maximum Financing

A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

Merged Credit Report

A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

Modification

The act of changing any of the terms of the mortgage.

Money Market Account

A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account

Money Market Fund

A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

Monthly Fixed Installment

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

Monthly Payment Mortgage

A mortgage that requires payments to reduce the debt once a month.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt

Mortgage Banker

A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker

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.

Mortgagee

The lender in a mortgage agreement.

Mortgage Insurance

A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance.

Mortgage Insurance Premium (MIP)

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgage Life Insurance

A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgagor

The mortgage borrower who gives the mortgage as a pledge to repay. No income verification (return to top)See "stated income".

Multiwelling Units


Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multi-family Mortgage

A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

Multifamily Properties

Fannie Mae provides financing for multifamily (buildings with five or more units) rental properties through a nationwide network of mortgage lenders.

Negative Amortization

A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

Net Cash Flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

Net Worth

The value of all of a person's assets, including cash, minus all liabilities.

No Cash-Out Refinance

A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

Non-liquid Asset

An asset that cannot easily be converted into cash.

Note

A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

Note Rate

The interest rate stated on a mortgage note.

Notice of Default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Original Principal Balance

The total amount of principal owed on a mortgage before any payments are made.

Origination Fee

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing

A property purchase transaction in which the property seller provides all or part of the financing.

Partial Payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Personal Property

Any property that is not real property.

PITI

See principal, interest, taxes and insurance (PITI) below.

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Developments (PUD)

A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

Point

Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

Power of Attorney

A legal document that authorizes another person to act on ones behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Prearranged Refinancing Agreement

A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

Pre-foreclosure Sale

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

Prepayemnts

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment Penalty

A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Pre-qualification

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Prime Rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal

Amount of debt, not including interest. The face value of a note or mortgage.

Principal Balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

Principal, Interest, Taxes, And Insurance (PITI)

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

Private Mortgage Insurance (PMI)

Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Promissory Note

A written promise to repay a specified amount over a specified period of time.

Public Auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD (Planned Unit Development)

Development) A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Purchase and Sale Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Money Transaction

The acquisition of property through the payment of money or its equivalent.
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