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Acceleration
The right of the mortgagee
(lender) to demand the immediate repayment of the mortgage loan
balance upon the default of the mortgagor (borrower), or by
using the right vested in the Due-on-Sale Clause.
Adjustable rate mortgage (ARM)
Is a mortgage in which the
interest rate is adjusted periodically based on a pre-selected
index. Also sometimes known as the re-negotiable rate mortgage,
the variable rate mortgage or the Canadian rollover mortgage.
Adjustment interval
On an adjustable rate mortgage,
the time between changes in the interest rate and/or monthly
payment, typically one, three or six months, depending on the
index.
Amortization
Means loan payment by equal
periodic payment calculated to pay off the debt at the end of a
fixed period, including accrued interest on the outstanding
balance.
Annual percentage rate (A.P.R.)
Is a interest rate reflecting
the cost of a mortgage as a yearly rate. This rate is likely to
be higher than the stated note rate or advertised rate on the
mortgage, because it takes into account point and other credit
cost. The APR allows home buyers to compare different types of
mortgages based on the annual cost for each loan.
Appraisal
An estimate of the value of
property, made by a qualified professional called an
"appraiser".
Assessment
A local tax levied against a
property for a specific purpose, such as a sewer or street
lights.
Assumption
The agreement between buyer and
seller where the buyer takes over the payments on an existing
mortgage from the seller. Assuming a loan can usually save the
buyer money since this is an existing mortgage debt, unlike a
new mortgage where closing cost and new, probably higher,
market-rate interest charges will apply.
Balloon (payment) mortgage
Usually a short-term fixed-rate
loan which involves small payments for a certain period of time
and one large payment for the remaining amount of the principal
at a time specified in the contract.
Blanket Mortgage
A mortgage covering at least
two pieces of real estate as security for the same mortgage.
Borrower (Mortgagor)
One who applies for and
receives a loan in the form of a mortgage with the intention of
repaying the loan in full.
Broker
An individual in the business
of assisting in arranging funding or negotiating contracts for a
client buy who does not loan the money himself. Brokers usually
charge a fee or receive a commission for their services.
Buy-down
When the lender and/or the home
builder subsidized the mortgage by lowering the interest rate
during the first few years of the loan. While the payments are
initially low, they will increase when the subsidy expires.
Cash Flow
The amount of cash derived over
a certain period of time from an income-producing property. The
cash flow should be large enough to pay the expenses of the
income producing property (mortgage payment, maintenance,
utilities, etc).
Caps (interest)
Consumer safeguards which limit
the amount the interest rate on an adjustable rate mortgage may
change per year and/or the life of the loan.
Caps (payment)
Consumer safeguards which limit
the amount monthly payments on an adjustable rate mortgage may
change.
Closing
The meeting between the buyer,
seller and lender or their agents where the property and funds
legally change hands. Also called settlement. Closing costs
usually include an origination fee, discount points, appraisal
fee, title search and insurance, survey, taxes, deed recording
fee and other costs assessed at settlement. The cost of closing
usually are about 1.5 to 2% of the purchase price.
Commitment
A promise by a lender to make a
loan on specific terms or conditions to a borrower or builder. A
promise by an investor to purchase mortgages from a lender with
specific terms or conditions. An agreement, often in writing,
between a lender and a borrower to loan money at a future date
subject to the completion of paper work or compliance with
stated conditions.
Construction loan
A short term interim loan to
pay for the construction of buildings or homes. These are
usually designed to provide periodic disbursements to the
builder as he progresses.
Contract sale or deed:
A contract between purchaser
and a seller of real estate to convey title after certain
conditions have been met. It is a form of instalment sale.
Conventional loan
A mortgage not insured by CMHC
or GE Capital. Typically a mortgage under 75% loan to value.
Covenant
-
A clause in a loan agreement
written to protect the lender's claim by keeping the borrower's
financial position approximately the same as it was at the time
the loan agreement was made. Essentially, covenants spell out
what the borrower may do and must do in order to satisfy the
terms of the loan. For example, the borrower may be prohibited
from issuing more debt by using certain assets as collateral.
-
- Credit Report
- A report documenting the credit
history and current status of a borrower's credit standing.
-
- Debt-to-Income Ratio
- The ratio, expressed as a
percentage, which results when a borrower's monthly payment
obligation on long-term debts is divided by his or her gross
monthly income. See housing expenses-to-income ratio. Also known
as TDS.
-
- Deed of trust
- In many states, this document
is used in place of a mortgage to secure the payment of a note.
-
- Default
- Failure to meet legal
obligations in a contract, specifically, failure to make the
monthly payments on a mortgage.
-
- Deferred interest
- When a mortgage is written with
a monthly payment that is less than required to satisfy the note
rate, the unpaid interest is deferred by adding it to the loan
balance. See negative amortization.
-
- Delinquency
- Failure to make payments on
time. This can lead to foreclosure.
-
- Discount Point
- See point.
-
- Down Payment
- Money paid to make up the
difference between the purchase price and the mortgage amount.
-
- Due-on-Sale-Clause
- A provision in a mortgage or
deed of trust that allows the lender to demand immediate payment
of the balance of the mortgage if the mortgage holder sells the
home.
-
- Earnest Money or Deposit
- Money given by a buyer to a
seller as part of the purchase price to bind a transaction or
assure payment.
-
- Equity
- The difference between the fair
market value and current indebtedness, also referred to as the
owner's interest. The value an owner has in real estate over and
above the obligation against the property.
-
- Escrow
- An account held by the lender
into which the home buyer pays money for tax or insurance
payments. Also earnest deposits held pending loan closing.
-
- Fixed Rate Mortgage
- The mortgage interest rate will
remain the same on these mortgages throughout the term of the
mortgage for the original borrower.
-
- Foreclosure
- A legal process by which the
lender or the seller forces a sale of a mortgaged property
because the borrower has not met the terms of the mortgage. Also
known as a repossession of property.
-
- Graduated Payment Mortgage
(GPM)
- A type of flexible-payment
mortgage where the payments increase for a specified period of
time and then level off. This type of mortgage has negative
amortization built into it.
-
- Guaranty
- A promise by one party to pay a
debt or perform an obligation contracted by another if the
original party fails to pay or perform according to a contract.
-
- Hazard Insurance
- A form of insurance in which
the insurance company protects the insured from specified
losses, such as fire, windstorm and the like.
-
- Housing Expenses-to-Income
Ratio
- The ratio, expressed as a
percentage, which results when a borrower's housing expenses are
divided by his/her gross monthly income. See debt-to-income
ratio. Also known as GDS
-
- Impound
- That portion of a borrower's
monthly payments held by the lender to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items
as they become due. Also known as reserves.
-
- Index
- A published interest rate
against which lenders measure the difference between the current
interest rate on an adjustable rate mortgage and that earned by
other investments (such as one- three-, and five-year U.S.
Treasury security yields, the monthly average interest rate on
loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by savings and loans), which is
then used to adjust the interest rate on an adjustable mortgage
up or down.
-
- Interim Financing
- A construction loan made during
completion of a building or a project. A permanent loan usually
replaces this loan after completion.
-
- Investor
- A money source for a lender.
-
- Lien
- A claim upon a piece of
property for the payment or satisfaction of a debt or
obligation.
-
- Loan-to-Value Ratio
- The relationship between the
amount of the mortgage loan and the appraised value of the
property expressed as a percentage. Also known as LTV.
-
- Margin
- The amount a lender adds to the
index on an adjustable rate mortgage to establish the adjusted
interest rate.
-
- Market Value
- The highest price that a buyer
would pay and the lowest price a seller would accept on a
property. Market value may be different from the price a
property could actually be sold for at a given time.
-
- MIP (Mortgage Insurance
Premium)
- It is insurance from CMHC or GE
to the lender against incurring a loss on account of the
borrower's default.
-
- Mortgage, First
- A real estate loan with the
right to payment in full before payments to other lenders are
made. First mortgages are generally considered low-risk
investments, although the quality of real estate pledged as
collateral is of crucial importance in determining the risk
level of the mortgage.
- Mortgage, Second
- A real estate mortgage with a
subordinate claim to another mortgage on the same property. The
second mortgage is more risky to the lender than the first
mortgage; thus, it carries a higher rate of interest.
- Mortgage Insurance
- Money paid to insure the
mortgage when the down payment is less than 20 percent. See
private mortgage insurance, MIP mortgage insurance.
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- Mortgagee
- The lender.
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- Mortgagor
- The borrower or homeowner.
-
- Negative Amortization
- Occurs when your monthly
payments are not large enough to pay all the interest due on the
loan. This unpaid interest is added to the unpaid balance of the
loan. The danger of negative amortization is that the home buyer
ends up owing more than the original amount of the loan.
-
- Net Effective Income
- The borrower's gross income
minus federal income tax.
-
- Non Assumption Clause
- A statement in a mortgage
contract forbidding the assumption of the mortgage without the
prior approval of the lender. Note: The signed obligation to pay
a debt, as a mortgage note.
-
- Origination Fee
- The fee charged by a lender to
prepare loan documents, make credit checks, inspect and
sometimes appraise a property; usually computed as a percentage
of the face value of the loan.
-
- Permanent Loan
- A long term mortgage, usually
ten years or more. Also called an "end loan."
-
- PITI
- Principal, Interest, Taxes and
Insurance. Also called monthly housing expense.
-
- Pledged account Mortgage (PAM):
- Money is placed in a pledged
savings account and this fund plus earned interest is gradually
used to reduce mortgage payments.
-
- Points (loan discount points)
- Prepaid interest assessed at
closing by the lender. Each point is equal to 1 percent of the
loan amount (e.g., two points on a $100,000 mortgage would cost
$2,000).
-
- Power of Attorney
- A legal document authorizing
one person to act on behalf of another.
-
- Prepaid Expenses
- Necessary to create an escrow
account or to adjust the seller's existing escrow account. Can
include taxes, hazard insurance, private mortgage insurance and
special assessments.
-
- Prepayment
- A privilege in a mortgage
permitting the borrower to make payments in advance of their due
date.
-
- Prepayment Penalty
- Money charged for an early
repayment of debt. Prepayment penalties are allowed in some form
(but not necessarily imposed) in many states.
-
- Primary Mortgage Market
- Lenders making mortgage loans
directly to borrower's such as savings and loan associations,
commercial banks, and mortgage companies. These lenders
sometimes sell their mortgages into the secondary mortgage
markets.
-
- Principal
- The amount of debt, not
counting interest, left on a loan.
-
- Private Mortgage Insurance
(PMI)
- In the event that you do not
have a 25 percent down payment, lenders will allow a smaller
down payment - as low as 5 percent in some cases. With the
smaller down payment loans, however, borrowers are usually
required to carry private mortgage insurance. Private mortgage
insurance will usually require an initial premium payment and
may require an additional monthly fee depending on you loan's
structure.
-
- Realtor
- A real estate broker or an
associate holding active membership in a local real estate board
affiliated with the National Association of Realtors.
-
- Recision
- The cancellation of a contract.
With respect to mortgage refinancing, the law that gives the
homeowner three days to cancel a contract in some cases once it
is signed if the transaction uses equity in the home as
security.
-
- Recording Fees
- Money paid to the lender for
recording a home sale with the local authorities, thereby making
it part of the public records.
-
- Refinance
- Obtaining a new mortgage loan
on a property already owned. Often to replace existing loans on
the property.
-
- Renegotiable Rate Mortgage
- A loan in which the interest
rate is adjusted periodically. See adjustable rate mortgage.
-
- Reverse Annuity Mortgage (RAM)
- A form of mortgage in which the
lender makes periodic payments to the borrower using the
borrower's equity in the home as Satisfaction of Mortgage: The
document issued by the mortgagee when the mortgage loan is paid
in full. Also called a "release of mortgage."
-
- Second Mortgage
- A mortgage made subsequent to
another mortgage and subordinate to the first one.
-
- Secondary Mortgage Market
- The place where primary
mortgage lenders sell the mortgages they make to obtain more
funds to originate more new loans. It provides liquidity for the
lenders. Security.
-
- Servicing
- All the steps and operations a
lender performs to keep a loan in good standing, such as
collection of payments, payment of taxes, insurance, property
inspections and the like.
-
- Settlement/Settlement Costs
- See closing/closing costs.
-
- Shared Appreciation Mortgage
(SAM)
- A mortgage in which a borrower
receives a below-market interest rate in return for which the
lender (or another investor such as a family member or other
partner) receives a portion of the future appreciation in the
value of the property. May also apply to mortgage where the
borrowers shares the monthly principal and interest payments
with another party in exchange for part of the appreciation.
-
- Simple Interest
- Interest which is computed only
on the principle balance.
-
- Survey
- A measurement of land, prepared
by a registered land surveyor, showing the location of the land
with reference to know points, its dimensions, and the location
and dimensions of any buildings.
-
- Sweat Equity
- Equity created by a purchaser
performing work on a property being purchased.
-
- Title
- A document that gives evidence
of an individual's ownership of property.
-
- Title Insurance
- A policy, usually issued by a
title insurance company, which insures a home buyer against
errors in the title search. The cost of the policy is usually a
function of the value of the property, and is often borne by the
purchaser and/or seller. Policies are also available to protect
the lender's interests.
-
- Title Search
- An examination of municipal
records to determine the legal ownership of property. Usually is
performed by a title company.
-
- Truth-In-Lending
- A federal law requiring
disclosure of the Annual Percentage Rate to home buyers shortly
after they apply for the loan. Also known as Regulation Z.
-
- Two-Step Mortgage
- A mortgage in which the
borrower receives a below-market interest rate for a specified
number of years (most often seven or 10), and then receives a
new interest rate adjusted (within certain limits) to market
conditions at that time. The lender sometimes has the option to
call the loan due with 30 days notice at the end of seven or 10
years. Also called "Super Seven" or "Premier" mortgage.
-
- Underwriting
- The decision whether to make a
loan to a potential home buyer based on credit, employment,
assets, and other factors and the matching of this risk to an
appropriate rate and term or loan amount.
-
- Usury
- Interest charged in excess of
the legal rate established by law.
-
- Variable Rate Mortgage (VRM)
- See adjustable rate mortgage.
-
- Verification of Deposit (VOD)
- A document signed by the
borrower's financial institution verifying the status and
balance of his/her financial accounts.
-
- Verification of Employment
(VOE)
- A document signed by the
borrower's employer verifying his/her position and salary.
-
- Warehouse Fee
- Many mortgage firms must borrow
funds on a short term basis in order to originate loans which
are to be sold later in the secondary mortgage market (or to
investors). When the prime rate of interest is higher on short
term loans than on mortgage loans, the mortgage firm has an
economic loss which is offset by charging a warehouse fee.
-
- Wraparound mortgage
- Results when an existing
assumable loan is combined with a new loan, resulting in an
interest rate somewhere between the old rate and the current
market rate. The payments are made to a second lender or the
previous homeowner, who then forwards the payments to the first
lender after taking the additional amount off the top.
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broker for Canada, a mortgage broker for Ontario, or a mortgage
broker for Toronto, call us first. We can help mortgage
Canada.
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