An Annual Mortgage Constant is a measurement used in real estate to compare the annual debt service to the original loan principal amount. It is used to determine the efficiency of a mortgage from a borrower's perspective.
Annual Percentage Rate (APR) is a measure of the cost of borrowing, expressed as a yearly interest rate. It includes interest as well as other fees and charges for a loan.
A balloon payment is the final payment on a loan when that payment is significantly greater than the preceding installment payments and pays off the loan in full.
A balloon payment is a large sum repaid as an irregular installment in loan repayment, often seen as the final payment in loan structures where it is significantly larger than previous regular payments.
A Bill of Sale is a legal document transferring ownership of goods or property from one party to another. It can serve as security for a debt or as absolute proof of a sale.
A biweekly loan is a mortgage that requires principal and interest payments at two-week intervals. Each payment is exactly half of what a monthly payment would be. Over a year's time, the 26 payments are equivalent to 13 monthly payments, leading to faster amortization than a standard monthly payment mortgage.
A budget mortgage is a type of mortgage that necessitates monthly payments covering property taxes and insurance alongside principal and interest.
A co-mortgagor is an individual who signs a mortgage contract with another party and is jointly obligated to repay the loan. This person typically helps in meeting the loan requirements and gains a share of ownership in the property.
A residential mortgage loan eligible for purchase by FNMA (Fannie Mae) or FHLMC (Freddie Mac). These loans typically offer lower interest rates and more favorable terms compared to nonconforming mortgage loans.
A constant-payment loan is structured such that equal payments are made periodically to completely pay off the debt by the loan's maturity date. This type of loan typically involves fixed interest rates and scheduled payments that cover both principal and interest.
A deed in lieu of foreclosure is a legal process where a borrower voluntarily transfers the ownership of property to a lender to satisfy a loan that is in default and avoid foreclosure proceedings.
A provision in a mortgage that mandates the loan be paid in full when the property is sold. This clause protects lenders by ensuring the loan is not assumed by a potentially less creditworthy buyer.
Equity represents a beneficial interest in an asset, net asset value, or shareholders' interest in a company. It is a critical component in personal finance, corporate finance, and accounting.
Equity Buildup refers to the gradual increase in an owner's equity in mortgaged property, primarily caused by the amortization of the loan principal.
The Equity of Redemption is a legal right of mortgagors to reclaim their property after defaulting, by settling the entire mortgage debt including costs and interest before foreclosure occurs.
A fixed-rate loan is a type of financing arrangement where the interest rate remains constant for the entire term of the loan, providing borrowers with predictable monthly payments.
A term with multiple definitions, spanning real estate, finance, bond trading, and general business contexts. The nuanced meanings can significantly impact various industries.
A floor loan represents the minimum amount that a lender is willing to advance to a borrower, typically within real estate or construction financing.
An overview of the legal process where a lender seeks to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the property used as collateral for the loan.
A fully amortized loan is one in which payments of both interest and principal are made regularly according to a set schedule, which are sufficient to liquidate the loan over its term; it is essentially self-liquidating.
A GI Loan, also known as a VA Loan, is a mortgage loan provided by private lenders and partially guaranteed by the Veterans Administration (VA) to eligible veterans, service members, and their families. It is designed to offer long-term financing to American veterans or their surviving spouses.
A Government-Sponsored Enterprise (GSE) is a financial services corporation created by the United States Congress. Their purpose is to enhance the flow of credit to specific sectors of the American economy and to make those segments more efficient and transparent. Two prominent GSEs are the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac.
A Growing-Equity Mortgage (GEM) is a type of home loan where the monthly payments increase annually by a predetermined amount. These additional payments are applied directly to the loan's principal, thereby reducing the loan's maturity period faster compared to a standard Level-Payment Mortgage.
A home loan, also known as a mortgage, is a financing arrangement in which an individual borrows money from a financial institution to purchase residential property.
Homeownership refers to the state of living in a structure that one owns, rather than renting or serving as a tenant. Owning a home provides financial stability and potential asset appreciation over time.
A Guide to Understanding Hybrid ARMs: A mortgage offering both fixed and adjustable interest rate periods.
An impound account is a fund set aside by a lender for the future payment of various required expenses like property taxes and insurance premiums. These accounts are typically used in mortgage agreements.
Imputed interest refers to interest that is considered by tax authorities as having been paid or received even though no actual interest payment was made. It commonly applies in situations where the stated interest rate on a loan or financial instrument is considered insufficient or below market rates.
In finance and various fields, an installment refers to anything given or received as part of a series of steps, commonly used in the context of debt repayment over successive periods.
An installment sale is a sales arrangement where the buyer agrees to make payments over time rather than paying the full amount upfront. This type of sale is commonly used in real estate transactions and for higher-priced goods or services.
An interest-only loan is a type of loan where the borrower is required to pay only the interest for some period of the term, usually until the loan reaches maturity. At the end of that period, the principal is due in full. Unlike traditional loans, it does not require regular principal amortization during the term.
A level-payment mortgage requires the same payment each month or other period to achieve full amortization over the loan term. This structure provides predictability for borrowers regarding monthly expenses.
A lien is a legal right or interest that a creditor has in the debtor's property, which lasts until the debt obligation is satisfied. It is a type of encumbrance used to secure the payment of a debt, judgment, mortgage, or taxes.
Loan Closing refers to the final step in the process of securing a loan, particularly in real estate transactions. It encompasses all activities that transpire when the borrower and lender settle the terms and conditions of the loan agreement.
A Loan Origination Fee is a charge levied by a lender for processing a new loan application, used as compensation for putting the loan in place.
The Loan-to-Value (LTV) ratio is a financial metric used by lenders to evaluate the risk involved in lending a borrower against the value of the asset being purchased.
A locked-in interest rate is a rate promised by a lender at the time of loan application. The promise is a legal commitment of the lender, though there may be qualifications or contingencies that allow the lender to charge a higher rate. On home loans, the lock-in is customarily provided for 1% of the amount borrowed, though often it is free of charge. However, many prospective lenders find ways to renege on commitments when interest rates rise.
A mortgage is a legal agreement by which a sum of money is lent to a borrower for purchasing property, with the property serving as collateral. The borrower is the mortgagor, and the lender is the mortgagee.
Mortgage debt refers to the amount of money owed under a mortgage, which is a type of loan used particularly for financing the purchase of real estate.
A mortgagor is an individual or entity that borrows money through a mortgage by pledging property as security for the loan.
Negative amortization is an increase in the outstanding balance of a loan resulting from the failure of periodic debt service payments to cover the required interest charged on the loan.
A no-documentation loan (often referred to as a 'no doc' loan) is a mortgage loan for which the borrower is not required to provide proof of income, employment, or assets.
A nonconforming loan is a type of home mortgage loan that does not meet the standards of, or is too large to be purchased by, the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). Due to this, the interest rates on these loans are typically higher.
The OFHEO Price Index, also known as the FHFA House Price Index, is a home price index compiled by the Office of Federal Housing Finance Agency, based on data from loans held by government-sponsored enterprises (GSEs).
An open mortgage is a mortgage that has matured or is overdue, making the property susceptible to foreclosure at any time. It is a financial situation where the borrower has failed to make timely payments, removing any safeguards against lender actions to reclaim the property.
An Open-End Mortgage refers to a type of mortgage under which the borrower can borrow additional funds from the lender, typically up to a specified ceiling.
Principal and Interest (P&I) refers to the two main components of a loan payment. The principal repayment decreases the loan balance, while the interest is the cost of borrowing the money.
A participation loan is a financial arrangement where multiple lenders share in providing a loan, typically with one lender acting as the lead to service the loan. This can distribute the risk and allow for larger loan amounts than a single lender might handle.
A piggyback loan is a financial arrangement involving two loans simultaneously to the same borrower, typically to eliminate private mortgage insurance (PMI) or to secure more favorable terms.
Prepaid interest is the interest paid in advance before it is earned, often seen in loan agreements and mortgage practices. Generally, prepaid interest is not tax deductible, except for the customary points paid by a borrower on the initial mortgage to purchase a principal residence.
A prepayment clause is a provision in a bond or mortgage that allows the borrower to pay off the loan before its scheduled due date. In some cases, there may be penalties for prepayment, such as the waiver of interest that is not yet due.
A prepayment penalty is a fee paid by a borrower for the privilege of retiring a loan early. It is not a tax-deductible interest expense.
Prepayment privilege refers to the right of a borrower to repay a loan before its scheduled maturity date without incurring penalties.
A preliminary process used to estimate the most expensive home a buyer can afford based on their income and available liquid assets. This exercise outlines potential pricing but does not guarantee specific financing nor obligate the buyer to accept it.
The Real Estate Settlement Procedures Act (RESPA) is a federal law that governs how mortgage lenders must treat applicants for federally-related real estate loans on properties with one to four dwelling units. It aims to provide borrowers with comprehensive knowledge, enabling informed comparison shopping for mortgage money.
Reconveyance is a process in which a lender transfers the title of a property back to the borrower once the mortgage debt is fully paid off. This legal document ensures the borrower's ownership of the property is unencumbered by the lender’s lien.
Redeeming refers to various financial and legal acts of reclaiming or repurchasing something, such as cashing in a maturing note, bond, or curing a mortgage default.
Refinancing involves obtaining new funding to pay off an existing obligation, typically done to secure a more favorable interest rate or reduce monthly payments.
A release can signify different forms of authorization or versioning across various fields such as general permissions, real estate, and computing software updates.
A clause in a mortgage that gives the property owner the privilege of paying off a portion of the mortgage indebtedness, thus freeing a portion of the property from the mortgage.
A Reverse Annuity Mortgage (RAM) is a financial instrument that allows elderly homeowners to convert home equity into a steady stream of income or a lump sum, while continuing to live in their home. This facility is especially useful for retirees needing to access additional funds without selling their property.
The right of redemption allows a property owner to recover their property that has been transferred due to a mortgage or other lien by repaying the debt, typically before or shortly after foreclosure. This right is also known as the equity of redemption.
A type of mortgage commonly used in Canada in which the amortization of the principal is based on a long term, but the interest rate is established for a much shorter term. The loan may be extended, or rolled over, at the end of the shorter term at the current market interest rate.
A seasoned loan is a bond or mortgage on which several payments have been collected. These types of loans are considered lower risk and more marketable than newly issued loans.
A secured bond is a type of bond backed by some form of collateral such as a mortgage or other lien. The specifics of the security are detailed in the bond agreement, known as an indenture. Unlike secured bonds, debentures (unsecured bonds) are not backed by collateral.
A short sale can refer to both an arrangement within financial markets involving the sale of securities, as well as an arrangement between a mortgagor and mortgagee involving a real estate transaction.
The condition of sale of real estate property whereby the purchaser takes property encumbered by a pre-existing mortgage, and the purchaser's obligation to the mortgagee is limited to the property subject to the mortgage, unless the purchaser becomes personally liable on the debt by assuming the mortgage.
Title insurance is an insurance policy that protects the holder from loss sustained through defects in the title. Mortgage lenders virtually always require borrowers to buy a mortgagee's policy of title insurance. The premiums paid on a business title insurance policy are normally tax deductible.
A Title-Theory State is one in which the law splits the title to mortgaged property into legal title held by the lender and equitable title held by the borrower. The borrower gains full title to the property upon retiring the mortgage debt. In a title-theory state, mortgage lenders may possess the property upon default of the borrower.
A Trustee's Sale is a foreclosure sale conducted by a trustee under the stipulations of a deed of trust, where the trustee is authorized to foreclose the mortgage and sell the property upon the borrower's default.
A variable interest rate is the amount of compensation to a lender that is allowed to vary over the maturity of a loan. It is generally governed by an appropriate index.
A voluntary lien is a legal claim against a property, typically agreed upon by the property owner, often involving mortgages or other secured loans.
