The mortgage interest rate at zero points. In the secondary market, it is the security rate that trades at a price of 100.
Making a loan payment that is larger than the scheduled payment as a means of repaying the loan more quickly.
The unfounded belief that there is a special way to pay down the balance of a home mortgage faster, if one knows the secret.
Payment adjustment interval
The period between payment changes on an ARM, which may or may not correspond to the interest rate adjustment period. The risk on loans on which the payment adjusts less frequently than the interest rate is that they may generate negative amortization.
Payment increase cap
The maximum permissible percentage increase at a payment adjustment date in the payment on an ARM. A cap of 7.5% is fairly common.
Payment decrease cap
The maximum permissible percentage decrease at a payment adjustment date in the payment on an ARM.
The period of time over which the borrower is obliged to make payments. For most mortgages, the payment period is a month, for some it is biweekly.
A relief program instilled by Fannie Mae in 2003-4 allowing a borrower to skip up to 2 mortgage payments in any 12 month period, and up to a total of 10 payments over the life of a loan.
The interest rate that is used to calculate the mortgage payment, which is ordinarily but not always the interest rate.
A very large increase in the payment on an ARM that may come as a surprise to the borrower. The term is also used to refer to a large differential between the rent being paid by a first-time homebuyer, and the monthly housing expense on the purchased home.
The month wherein the outstanding loan balance is paid down to zero. It may or may not be the term.
Per diem interest
Interest that is generated from the day of closing to the first day of the following month. In some instances the borrower can obtain a credit at closing by making the first payment a month in advance.
A poorly advised scheme designed to tap into equity for cash advances through periodic refinancings.
Paying points as a means of reducing the interest rate.
Pick a Payment ARM
See Flexible Payment ARM
A combination of a first mortgage for 80% of property value, and a second for 5%, 10%, 15%, or 20% of the value. These are designated as 80/5/15, 80/10/10, 80/15/5, and 80/20/0, combinations respectively. Piggybacks are a substitute for mortgage insurance for borrowers who cannot put 20% down.
A risk to the lender that interest rates will rise between the time a lock commitment is given to the borrower and the time the loan is closed, leaving the lender in a position of having to take a loss on subsequently selling the loan.
An acronym for principal, interest, taxes and insurance, as the components of monthly housing expense.
Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA.
Points (Loan Discount Points)
An upfront cash payment of prepaid interest assessed at closing by the lender expressed as a percent of the loan amount. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000). Lenders today commonly offer a wide range of rate/point combinations, especially on fixed rate mortgages (FRMs), including combinations with negative points. With a negative point loan the lender contributes cash towards satisfying the closing costs. Positive and negative points are sometimes referred to as “discounts” and “premiums,” respectively.
A mortgage that can be moved from one property to another.
A lender that holds the loans it originates in its portfolio rather than selling them, as a temporary lender does.
The base mortgage prices that are delivered by lenders to loan officers and mortgage brokers, as opposed to the final prices paid by borrowers.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
A commitment from a lender to make a mortgage loan to a specified borrower prior to the borrower’s identification of a specific property. This is designed to make it easier to shop for a house. Unlike a pre-qualification, the lender checks the applicant’s credit. It also refers to the process of determining how much money you will be eligible to borrow before you apply for a loan.
A variety of distasteful lender practices that are designed to take advantage of unsuspecting borrowers.
A payment made by the borrower that is over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is know as a “prepayment in full”; otherwise, it is a “partial prepayment.”
A charge imposed by the lender for early repayment of debt. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest. Prepayment penalties are permissible in some form in many states but depending on the lender are not necessarily imposed.
Same as qualification.
Pricing Notch Point (PNP)
A loan amount where any type of increase will translate to an increase in the interest rate, points or mortgage insurance premium.
Primary Mortgage Market
Lenders, such as savings and loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as FNMA or GNMA, etcetera.
The house in which the borrower will live for most of the time. The distinction between property types is made from a second home or an investor property that will be rented.
The portion of the monthly loan payment that is used to reduce the loan balance.
Under the FHA reverse mortgage program it is the present value of a house, given the elderly owner’s right to live there until death or voluntary move-out.
The amount borrowed or remaining that is unpaid. It is the portion of the monthly payment that serves to reduce the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage exclusive of interest or any other charges.
Principal, Interest, Taxes, and Insurance (PITI)
These are the four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether or not these amounts are paid into an escrow account each month.
Private Mortgage Insurance (PMI)
Mortgage insurance provided by private mortgage insurance companies, or PMIs. In cases where borrowers are unable to fulfill a 20 percent down payment, lenders may allow a smaller down payment, sometimes as low as 3 percent. However in such instances, borrowers are generally required to carry private mortgage insurance. PMIs usually require an initial premium payment and depending on the loan’s structure may also require an additional monthly fee.
Compiling and maintaining the information file pertaining to a mortgage transaction, including the credit report, appraisal, employment and asset verifications, and so forth. The processing file is then conveyed to underwriting for the final loan decision.
A succession of sham home sales at progressively higher prices as part of a scheme to defraud FHA.