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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.
HUD-1 statement
A document that provides an itemized listing of the funds
that are payable at closing. Items that appear on the statement
include real estate commissions, loan fees, points, and initial
escrow amounts. Each item on the statement is represented
by a separate number within a standardized numbering system.
The totals at the bottom of the HUD-1 statement define the
seller's net proceeds and the buyer's net payment at closing.
Impound
That portion of a borrower's monthly payments held by the
lender or servicer 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.
Indexed rate
The sum of the published index plus the margin. For example
if the index were 9% and the margin 2.75%, the indexed rate
would be 11.75%. Often, lenders charge less than the indexed
rate the first year of an adjustable-rate mortgage.
Initial Interest Rate
This refers to the original interest rate of the mortgage
at the time of closing. This rate changes for an adjustable-rate
mortgage (ARM). It's also known as "start rate"
or "teaser."
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Installment
The regular periodic payment that a borrower agrees to make
to a lender.
Insured Mortgage
A mortgage that is protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI).
Interest
The fee charged for borrowing money.
Interest
Accrual 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.
Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit
money to an account. That money is then released each month
to reduce the mortgagor's monthly payments during the early
years of a mortgage.
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.
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.
Jumbo Loan
A loan which is larger (more than $240,000 as of 1/1/99) than
the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Because jumbo
loans cannot be funded by these two agencies, they usually
carry a higher interest rate.
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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-Purchase
Mortgage Loan
An alternative financing option that allows low- and moderate-income
home buyers to lease a home 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 accumulates in a savings account for a down payment.
Liabilities
A person's financial obligations. Liabilities include long-term
and short-term debt.
Lien
A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
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.
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.
Loan
A sum of borrowed money (principal) that is generally repaid
with interest.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and
the appraised value of the property expressed as a percentage.
Lock
Lender's guarantee that the mortgage rate quoted will be good
for a specific number of days from day of application.
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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.
Maturity
The date on which the principal balance of a loan becomes
due and payable.
MIP (Mortgage Insurance
Premium)
It is insurance from FHA to the lender against incurring a
loss on account of the borrower's default.
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 and doesn't cover all of
the interest. The loan balance therefore increases instead
of decreasing.
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 charges a service fee to bring
borrowers and lenders together for the purpose of loan origination.
Mortgagee
The lender.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is
less than 20 percent. See private mortgage insurance, FHA
mortgage insurance.
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Mortgage Life Insurance
A type of term life insurance In the event that the borrower
dies while the policy is in force, the debt is automatically
paid by insurance proceeds.
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.
Note
A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period of
time.
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