Loan Terms

Question 1

Amortization:

Answer 1

periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term.

Question 2

Closing costs:

Answer 2

at the time of closing, payment is due for a number of fees that relate to the cost of obtaining a loan, the transfer of ownership to the borrower, and the taxes and fees owed to the state and local government.

Question 3

Debt-to-income ratio:

Answer 3

the relationship, expressed as a percentage, between a borrower’s monthly obligations on long-term debts and his or her gross monthly income.

Question 4

Discount point:

Answer 4

a fee paid in exchange for a reduction in the interest rate.

Question 5

Earnest money:

Answer 5

money paid by a buyer to a seller at the time of entering a contract to indicate intent and ability of the buyer to carry out the contract.

Question 6

Equity:

Answer 6

the difference between the fair market value of a property and the current balances of any mortgages and other liens against the property.

Question 7

Escrow account:

Answer 7

an account held by the lender, on behalf of a borrower, into which the borrower deposits money for taxes and/or insurance payments.

may also hold other funds related to a real estate purchase such as earnest money.

Question 8

Federally-related mortgage loan:

Answer 8

any loan (other than temporary financing) that is:

Secured by a first or subordinate lien on residential real property designed principally for occupancy by one to four families, the proceeds of which are used to prepay or pay off an existing loan secured by that property, and

• Made in whole or in part by any lender that is insured or regulated by any agency of the federal government
• Insured, guaranteed, supplemented, or assisted by the federal government or under or in connection with a housing or urban development program or a housing or related program administered by another such officer or agency
• Intended to be sold to Fannie Mae, Freddie Mac, Ginnie Mae, or a financial institution from which it will be purchased by Freddie Mac, or
• Made in whole or in part by any creditor as defined in 15 U.S.C. §1602(f) who makes or invests in residential real estate loans aggregating more than $1 million per year, excluding any agency or instrumentality of any state

Question 9

Fees:

Answer 9

any kind of money paid in conjunction with a mortgage loan, other than the actual loan amount and interest. “Fees” might include third-party fees such as those for credit reports or appraisals, or origination/broker fees. Fees affect the total cost of credit when obtaining a loan.

Question 10

Finance charge:

Answer 10

the cost of credit, expressed as a dollar amount.

Question 11

Lien:

Answer 11

A legal claim against property that was used as collateral to secure a debt.

Question 12

Negative amortization:

Answer 12

an amortization method in which the minimum monthly payments are not large enough to pay all the accrued interest due on the loan.

This unpaid interest is added to the balance of the loan.

Question 13

PFC:

Answer 13

prepaid finance charge.

Question 14

POC:

Answer 14

paid outside of closing.

Question 15

Prepayment penalty:

Answer 15

fees charged for an early repayment of debt.

• Prepayment penalties are subject to laws that restrict the amount of the penalty and that limit the imposition of prepayment penalties to the early years of a loan.
• Current regulations prohibit them in almost all loan transactions, other than those for certain fixed-rate qualified mortgages.
• “Hard” prepayment penalties apply to both the sale of a home and a refinance transaction.
• “Soft” prepayment penalties are prepayment penalties that apply only to refinancing transactions.

Question 16

Rate lock:

Answer 16

“locks” the interest rate applicable to a loan

– in other words, stops the rate from undergoing any further changes during a specific period of time prior to closing.

Question 17

Sales contract:

Answer 17

a legally binding agreement between a buyer and seller detailing the terms and conditions of the sale of real estate.

Question 18

Seller carry-back:

Answer 18

a purchase transaction, often involving an assumable mortgage, in which the party selling the property provides all or part of the financing.

Question 19

Service release premiums (SRPs):

Answer 19

service release premiums (SRPs) are fees which lenders or servicers may receive for selling or transferring their right to service a mortgage loan.

Question 20

Servicer:

Answer 20

an individual or entity that services a loan by performing responsibilities such as sending statements to borrowers, accepting payments, issuing late payment notices, and managing escrow accounts.

Question 21

Subordination:

Answer 21

changes the priority of liens secured by a property, dictating the order in which they would be paid off in the event of foreclosure.

Question 22

Tolerance:

Answer 22

describes an acceptable range or margin of error for accuracy.

For instance, the TRID Rule sets out tolerances ranging from zero to 10% on disclosed figures

– a figure with a zero tolerance limitation could not vary by any amount between what was disclosed and what is actually charged;

-a figure with a 10% tolerance could vary by no more than 10%.