Morgage Glossary of Terms...

Morgage Glossary of Common Terms

Use this helpful list of common terms to increase your 'loan vocabulary'. It is important that you have a clear understanding of the words and phrases that will be used during the process of securing a mortgage.

Amortization
Refers to the decreasing of your loan balance over a set term (usually 15 or 30 years) by way of monthly payments...to read more click on 'Amortization'

Amortization Schedule
Is a table that details each monthly payment on your loan. It generally will illustrate how your principal balance is reduced (or increased if in a neg am) according to your payment schedule...to read more click on 'Amortization Schedule' of loan volume.

Annual Percentage Rate / APR
This is a calculation that figures your effective interest rate by considering the fees associated with getting the loan (points, escrow, processing, etc)...to read more click on 'Annual Percentage Rate / APR

Biweekly Morgage
Is a loan wherein you make payments every two weeks rather than on a monthly basis. This results in 26 'half payments' each year rather than 12 'whole payments'---in other words, you make one 'whole payment' extra each year...to read more click on 'Biweekly Morgage'

Bridge Loan
Is a type of loan used transitionally until permanent financing is achieved. It is generally used as a short term financing solution...to read more click on 'Bridge Loan'

Cash Out Morgage
Refers to refinancing a loan so that the new balance is higher than the old balance and a portion of the difference is given to the borrower as cash...to read more click on 'Cash Out Morgage'

Conforming Morgage
Is a loan that 'conforms' to Fannie Mae or Freddie Mac guidelines. Currently this refers to 'traditional' loans up to $417,000. To read more click on 'Conforming Morgage'

Debt To Income Ratio
Is the percentage of a household income that must be used to pay for monthly debt obligations. It includes credit debt, installment payments (such as car loans), mortgage payments, property taxes, homeowners insurance and more...for more info click 'Debt to Income Ratio'

Direct Lender
Refers to a lending institution that lends its own money to customers directly (with out the use of a broker or other reseller)...to read more click on 'Direct Lender'

Discount Morgage Broker
Refers to a broker that claims to be compensated from the lender/bank for securing a loan on your behalf rather than charging you the fees...to read more click on 'Discount Mortgage Broker'

Discount Points
Are a specific type of Points that are paid by a borrower in order to 'buy' a lower interest rate than would otherwise be available to them...to read more click on 'Discount Points'

Good Faith Estimate
Is an itemized estimate of all the fees that will likely be incurred by a borrower securing a loan. This estimate must be provided within 72 hours of applying for a loan...to read more click on 'Good Faith Estimate'

Grace Period
Is the period of time after a mortgage payment is due wherein a lender will not penalize you for having not received your monthly payment. It is usually 15 days...to read more click on 'Grace Period'

Impounds
This is an account created to pay your property taxes and homeowners insurance. Some people find it more convenient to make small monthly payments to such an account rather than come up with a large sum annually...to read more click on 'Morgage Impounds'

Interest Only Morgage
Is a loan wherein the scheduled monthly payments only require that you pay the interest due and any amount paid into principal is purely voluntary. Generally, the Interest Only period lasts for a set number of years (usually 5 or 10 years)...to read more click on 'Interest Only Morgage'

Jumbo Morgage
This refers to a loan of an amount greater than the Conforming Limit of $417,000. However, some lenders simply use the term 'Non-Conforming' to refer to such loans and often use the term 'jumbo' only in reference to loans of an amount greater than $650,000...to read more click on 'Jumbo Morgage'

Loan to Value / LTV
Is a key risk factor used by lenders and it refers to the percentage of a property's value that is encumbered by a loan. For example, a $100,000 home with a loan amount of $70,000 would have an 'LTV' of 70%...to read more click on 'Loan to Value

Negative Amortization
Is a type of loan wherein the borrower is permitted to make monthly payments of an amount than is less than the total Interest and Principal that would normally be due. The shorted difference between what the borrower should pay and what the borrower actually pays is added to the loan balance...to read more click on 'Negative Amortization Morgage'

No Ratio
Is a lending program where all references to income and the 'Debt to Income Ratio' have been removed. Rather than emphasizing income it relies on a borrowers credit history, assets, and Loan to Value to support qualification...to read more click on 'No Ratio Morgage'

Option Arm
Is an Adjustable Rate Mortgage (though it can have a fixed rate or a fixed payment for a given number of years) that offers the borrower several payment options: each month the borrower can choose to pay an Interest Only payment, a Negatively Amortized payment, a full payment amortized at 30 years or a full payment amortized at 15 years...to read more click on 'Option Arm Morgage'

Piggy Back
Refers to a loan wherein a small 2nd mortgage is closed concurrently with a 1st mortgage (the 1st mortgage is usually at an LTV of 75-80%) and is designed to avoid having to pay the Mortgage Insurance associated with loans of an LTV greater than 80%...to read more click on 'Piggy Back Morgage'

PITI
Is an acronym that refers to the collective monthly payments of your Principal and Interest Payments (of your mortgage) as well as your Taxes and Insurance (Principa, Interest, Taxes Insurance)...to read more click on 'PITI'

PMI
Is an acronym for Private Mortgage Insurance and refers to an insurance premium payable to a lender that is generally required for Non-Subprime loans with a Loan to Value greater than 80%...to read more click on 'PMI'

Prepayment Penalty
Is a charge associated with some loans for repaying a loan within a certain period of time. The penalty is generally 6 Months Interest added in a lump sum to the loan balance and the penalty period is usually 1, 2 or 3 years...to read more click on 'Prepayment Penalty Definition'

Reverse Morgage
Is a loan available to seniors wherein the equity of a property is used to make mortgage payments so that the borrower does not have to make the monthly payments with their own cash...to read more click on 'Reverse Morgage'

Subprime Loan
Refers to loans made available to borrowers who don't qualify for market interest rates because of their credit history, loan to value, income and asset documentation issues; or any combination of those things...to read more click on 'Subprime Loan'

Truth in Lending
Is a Federal Act that protects consumers by requiring the clear disclosure of the terms and costs of of a loan...to read more click on 'Truth in Lending Act'

Yield Spread Premium / YSP
Is the monetary compensation a lender pays a broker for selling a Loan at a specific interest rate. The higher the interest rate the greater the 'YSP'...to read more click on 'Yield Spread Premium / YSP'

Morgage Terms To Empower You