General Mortgage Knowledge Definitions Flashcards
The true cost of financing. The amount financed and the cost to finance is
reflected in the Annual Percentage Rae.
Annual Percentage Rate (APR)
which is higher, APR or fully indexed note rate?
Generally, the APR is higher than the
fully indexed note rate.
A calculation or formula a lender uses that outlines the required payments,
which includes the monthly principal and interest required to extinguish a debt
over a predetermined period
Amortization (schedule)
A unit which equals 1/100 of 1%
Basic Points
Items of value owned by an individual
Asset
50 basis points equals?
.5%
A fee, referred to as a discount fee or discount points paid to a lender to
receive a rate below the lenders base rate or par rate. Also referred to as
permanent buy down
Buy down
A percentage limitation on how high or low an adjustable rate may increase or
decrease.
Cap
The cost associated with closing a mortgage loan transaction
Closing costs
A non-cash accounting expense reducing the value of an asset.
Depreciation
The difference between the market value of a property and the total
outstanding obligations
Combined Loan to Value (CLTV)
An index used in adjustable rate mortgages
Cost of funds index (COFI)
Failing to meet the monthly interest expense and deferring the outstanding
amount to a future date. Deferred interest has the impact of increasing the
principal balance and is also referred to as negative amortization
Deferred interest
The Fannie Mae electronic underwriting vehicle
Desktop Underwriter (DU)
A fee which is a percentage of the loan amount that is used to buy down the
mortgage interest rate
Discount and Discount
Points
A deposit used in a real estate purchase agreement. The amount is generally
held by the real estate broker, reflected as a cash asset on the loan application
and credited at the closing
Earnest Money Deposit
The difference between the market value of a property and the amount of
outstanding debt against the property
Equity
A third party agent that receives, holds, and/or disburses certain funds or
documents upon the performance of certain conditions. For example, an earnest
money deposit is put into escrow until the transaction is closed. Only then can
the seller receive the deposit.
Escrow
A trust account that is established to hold funds allocated for the payment of
real estate taxes, hazard or insurance premiums, etc., as they are received each
month and until such time as they are disbursed to pay the related bills.
Escrow Account
A mortgage that has priority over all other liens
First Mortgage
A mortgage where the interest rate remains the same for the life of the loan
Fixed rate mortgage
A method by the lender to accelerate the due date of the loan balance based on
a borrowers default on the loan. If the borrower is unable to meet the new
requirements the lender can remove the borrowers interest in the property
either through a judicial or non-judicial process based on state law
Foreclosure
An interest rate based on the index and the margin
Fully Indexed Rate
Monthly income before deductions
Gross Monthly Income
A market instrument that varies with market conditions. Rates tied to an index
can adjust based on the changes in the index
Index (plural is indices)
One of many indices used in the residential mortgage industry for adjustable
rate mortgages
11th District COFI
The cost of borrowing money
Interest
Where principal and interest payments are due just the interest is paid. The
principal remains the same when an interest only payment is made
Interest Only
The rate applied to the cost of borrowing money. The higher the risk then higher
the rate
Interest Rate
The loan amount as a percentage of the purchase price or appraised value
whichever is lower. LTV is always based on the first or senior mortgage position
Loan to Value (LTV)
One of many indices used in the residential mortgage industry for adjustable
rate mortgages
London Interbank Offer
Rate (LIBOR)
The highest the rate can increase above the initial fully indexed rate based on
the margin and index
Life of Loan Cap
A refinance transaction where the borrower can receive cash back of $2,000 or
2% of the loan amount whichever is less
Limited Cash-out Refinance
The lenders profit which is added to the index to determine the rate which is
referred to as the par rate or the fully indexed rate
Margin
An instrument that allows a voluntary lien on real property once recorded
Mortgage
An individual interest in a group of mortgages on the secondary market.
Principal and interest payments are grouped and paid to the individual investors
Mortgage Backed Security (MBS)
A form of insurance that protects the lender in the event of a borrowers default
Mortgage Insurance
When the full interest expense of a payment is not met, the interest is deferred
effectively increasing the amount owed. This is considered negative amortization
Negative Amortization
The difference between the assets owned and any liabilities owed. Positive net
worth means that the assets are worth more than the outstanding liabilities
Net worth
Taking and signing an application, negotiating terms and rates and the collecting
of documentation for a mortgage loan
Origination
The fee earned for originating a loan
Origination fee
