Adjustable Rate
Mortgage interest rates that adjust periodically based upon changes in the corresponding index. Payments may increase or decrease accordingly.

Amortization
The method of repayment whereby, the amount you borrow is repaid gradually through regular blended monthly payments of principal and interest. The first few years of payments is mostly applied toward the interest owed. In the final years of the loan, payment amounts are applied mostly to the remaining principal.

Annual Percentage Rate (APR)
The cost of credit expressed as the yearly percentage required to be disclosed by the lender under the Federal "Truth in Lending Act". It includes up-front costs (pre-paid) and finance charges associated with obtaining the loan. Therefore, it is usually a higher rate than the interest rate on the note.

Application
The initial statement of personal and financial information that is required to start the process of obtaining a credit decision on your loan request.

Application Fee
A Fee that is paid with the application. Application fee's may include charges for property appraisal ($250-$300) and/or a credit report. Please Note: (AMC Financial Services does not charge for application fees).

Appraisal
The fee charged by an appraiser to give an opinion of the property's market value as of a specific date. This is a requirement of most lenders to obtain the loan and is refunded to the Borrower at the funding of the loan.

Assumption of Mortgage
An agreement of the purchaser to become primarily liable for the mortgage loan. Unless otherwise "released" by the lender, the seller may remain secondarily liable for payments.

Cap
A maximum allowable increase, either for payment or interest rate, for a pre-determined period of time on an Adjustable Rate Mortgage.

Cash Out
To receive additional money as a result of refinancing your existing mortgage.

Ceiling
A maximum allowable interest rate that can be charged on an adjustable rate mortgage over the life of the loan.

Closing Costs
Fees the borrower or seller pays at the closing of the mortgage loan. This include but are not limited to the origination fee, discount points, attorney or escrow fees, title insurance, survey, recording fee, plus other items which must be "prepaid", such as taxes and hazard insurance escrow amounts.

Conforming Loan
Normally, a mortgage loan under $275,000 that is underwritten with standard qualifying "ratios" and underwriting requirements.

Contract of Sale
An agreement between buyer and seller for the price, terms, and conditions mutual to both parties to convey title to the buyer.

Credit Limit
The maximum amount of credit an applicant is approved for and has available for use with a home equity line of credit account.

Debt Service
The combined total of credit card, auto, mortgage or other debt which you pay on a monthly basis.

Deed of Trust
Mostly used in western states. This instrument is used to pledge the real estate as security for a the loan, similar to a mortgage.

Discount Points (or Points)
An amount usually paid to lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e. two points on a $100,000 mortgage would equal $2,000).

Down Payment
The difference between the purchase price and the part of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's owned funds. Gifts from related parties are sometimes acceptable, but must be disclosed to the lender.

Due on Sale
A clause in the mortgage agreement saying that, if the mortgagor (the borrower) sells, transfers, or, some times, further claims on the property, the mortgagee (the lender) may demand any outstanding balance to be paid in full.

Effective Interest Rate
Cost of credit on a yearly basis expressed as a percentage. It includes any up-front costs paid to obtain the loan, and is, usually a higher amount than the interest (note) rate in the mortgage. This is useful when comparing loan programs with different rates and points.

Encumbrance
The claim on a property by another party which would normally affect the ability to transfer ownership of the property.

Equity
The difference between the fair market value (appraised value) of the home and the outstanding mortgage balance.

FHA Loan
Better termed an "FHA Insured Loan." A loan in which the Federal Housing Administration has insured, against losses incurred, the lender which may be due to default.

First Mortgage
The mortgage which is the first lien on the title, taking priority over all other "junior" liens (which are financial encumbrances).

Fixed Rate
An interest rate that is fixed for the full term of the loan.

Good Faith Estimate
The written estimate of closing costs to obtain the mortgage which lenders must provide to you within three days of submitting an application.

Grace Period
The period of time which a loan payment may be paid after the due date and not incur a late charge. Any late payments may be reported on your credit report.

Gross Income
The income of the borrower before taxes or other deductions.

HUD I Settlement Statement
A universally utilized loan closing form that itemizes the costs associated with purchasing or refinancing a home.

Hazard Insurance
The contract (e.g. insurance policy) between purchaser and an insurer to compensate the insured for the loss of property due to hazards (e.g. fire, hail damage, etc.).

Home Equity Line of Credit
A line of credit giving you the ability to borrow funds at any time, and in the amount you choose, up to your maximum credit limit. The loan is secured by the equity in your home. Interest is normally tax deductible (consult your tax advisor), and can can be used for home improvements, major purchases, and/or debt consolidation.

Home Equity Loan
A fixed or adjustable rate loan used for a many purposes, also secured by the equity in the home. Interest paid is usually tax deductible (consult your tax advisor). Often used for home improvement and for replacing or consolidating consumer loans.

Index
The economic indicator, by which future interest rates for Adjustable Rate Mortgages are based. Common indexes include the "Cost of Funds" for the Eleventh Federal District of banks or the average interest rate of a 1 year Government Treasury Security.

Interest Rate
A periodic charge, expressed as a percentage, for use of credit.

Jumbo Loan
Mortgage loans over $2750,000. Terms and underwriting requirements may vary from conforming loans.

Loan to Value Ratio (LTV)
The percentage determined by dividing the lesser of sales or appraised value of the home or property into the loan amount, with the result expressed as a percentage. For example, if the sales price of of the home is $100,000 and the mortgage loan is $90,000, the loan to value percentage would be 90%. Loans with LTV's over 80% may require Private Mortgage Insurance (PMI).

Lock or Lock In
The commitment obtained from a lender guaranteeing you a particular interest rate and/or feature for a definite time period. Provides protection against rising interest rates between the time you apply for a loan, obtain loan approval, and the closing of the loan.

Margin
The amount, normally a percentage, that is added to the index which determines the interest rate for an Adjustable Rate Mortgage. This documentation is in the note when closing.

VA Loan
Better termed a "VA Insured Loan." A loan which the Veteran's Administration insures the lender against losses the lender may incur due to default. Usually only available to veterans holding a Certificate of Eligibility.

Minimum Payment
A minimum amount you must pay, on a periodic basis for a home equity loan or line of credit. With some programs, the minimum payment may be "interest only," (simple interest). In other programs, the minimum payment may include principal and interest (amortized).

Mortgage Banker
Originates (initiates) mortgage loans, lends their funds and closes the loan in their name.

Mortgage Broker
Like mortgage bankers, mortgage brokers initiate and process the loan application. However they don't fund the loan with their own money, and usually work as an "agent" on behalf of several investors, like mortgage banker, S & L's, banks, or investment bankers.

Mortgage Insurance (MIP or PMI)
Insurance purchased by borrowers to insure the lender or the government against loss if the borrower defaults.

MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of the LTV (loan-to-value). If you pay off a government insured loan prior to maturity, then you may be entitled to a refund of the MIP.

Private Mortgage Insurance, (PMI) is paid on conventional loans which are not government insured and the LTV is greater than 80%. Once you have accumulated 20% of the property's value as equity, the lender may waive PMI "at your request". Please note that this insurance does not involve any form of life insurance that pays off the loan in the event of death.

Mortgage Loan
A loan which uses real estate as security / collateral to provide for repayment if the borrower defaults on the terms of the loan. The Mortgage or Deed of Trust is the agreement pledging the property as security.

Mortgagee
The LENDER in a mortgage loan transaction.

Mortgagor
The BORROWER in a mortgage loan transaction.

Negative Amortization
Amortization whereby the payment is insufficient to fund complete repayment of the loan at its end of term. Often occurs when an increase in the monthly payment is limited by a ceiling or cap. The part of the payment which should be paid is added to the remaining balance. Thus balance owed may increase, rather than decrease over the life of the loan.

PITI
Principal, Interest, Taxes and Insurance (hazard) that usually comprise the monthly payment.

Points
An amount paid either to lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Prepayment Penalty
The fee that may be imposed by a lending institution for paying off a loan before its maturity date.

Qualifying Ratios
Comparisons of a borrower's debts and gross monthly income, expressed as percentage.

Right of Rescission
The legal right to cancel a mortgage contract that treats the contract as if it never existed. The Right of Rescission does not apply when purchasing a home or refinancing an investment property. It is applicable to refinances and home equity loans.

Security Interest
The interest a lender takes in the borrower's property to ensure repayment of the debt. See Mortgage and Deed of Trust above.

Servicing a Loan
An ongoing process of collecting and applying the monthly payment against your mortgage balance. It also includes the collecting and accounting of monthly escrow payments used for the payment of your annual tax and/or hazard insurance.

Title
Written evidence that proves the right of ownership of a specific piece of property.

Title Insurance
Protection for lenders or homeowners against financial loss resulting from legal defects on the title.

Transaction Fee
The fee which may be charged each time you draw on a home equity credit line.

Underwriting
The process of verifying and analyzing data necessary for determining a credit decision on your loan for the approval a loan.

Variable Rate
The interest rate that changes periodically based on changes in the corresponding index. Payments may increase or decrease accordingly.

VA Loan
A loan in which the Veteran's Administration insures the lender against losses the lender may incur due to borrower default. Usually available only to veteran's holding a Certificate of Eligibility.

Mortgage & Loan Glossary