To help you understand the language associated with real estate, we have provided you with the definitions of certain words
ADJUSTABLE RATE MORTGATE (ARM): With this type of loan, the rate can adjust up or down at set adjustment periods. Initial monthly payments will be lower with and ARM than with a fixed mortgage.
ADJUSTMENT PERIOD: This is the amount of time between interest rate changes. You can select an ARM with an adjustment period as short as six months and as long as ten years.
ANNUAL PERCENTATE RATE (APR): An interest rate reflecting the cost of the mortgage as a year rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it takes into account the points and other credit costs. The APR allows homeowners to compare different types of mortgages based on the annual costs of each loan.
ASSUMPTION OF MORTGAGE: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.
BALLOON PAYMENT: A lump sum principal payment that is due at the end of some mortgages or other long-term loans.
CAP: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
CERTIFICATE OF OCCUPANCY (C OF O): Certificate issued by the municipality’s Building Inspector that declares that the house and any improvements have been constructed with all applicable State, County and Town codes.
COVENANTS, CONDITIONS, & RESTRICTIONS: Documents that control the use, requirements and restrictions of a property.
CLOSING: Closing occurs when the deed to the home is actually transferred from the seller to the buyer, or when the final documents are signed on refinancing.
CLOSING STATEMENT: The financial disclosure statement accounts for all the funds received and expended at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.
COMMITMENT: A written agreement to make a loan for a certain amount with specific terms.
CONDOMINIUM: A type of real estate ownership where the owner receives the title to a particular unit and has a proportional interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors, and ceilings) serve as its boundaries.
CONTINGENCY: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining a mortgage or financing.
CONVERSION CLAUSE: A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. The may be an extra charge for this feature.
COOPERATIVE: A form of multiple ownership in which a corporation or business trust entity holds the title to a property but grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.
DUE-ON-SALE CLAUSE: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.
EQUITY: The residential market value of your home once you deduct the mortgage balance. A shorter term allows you to build equity more quickly than a longer term loan.
ESCROW: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assumes responsibility for handling all of the paperwork and distribution of funds.
ESCROW ACCOUNT: An accountant maintained by the lender to pay for the taxes, hazard insurance, and other items that become due. A portion of your monthly mortgage payments (which exceed principal and interest payments) is deposited into this account for those purposes.
FEE SIMPLE: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.
FIXED RATE MORTGAGE: With a fixed rate mortgage, the interest and monthly payments stay the same over the life of the loan.
INDEX: A measure of interest rate changes used to determine changes in an ARM’s interest rate of the term of the loan
JOINT TENANCY: An equal undivided ownership of property by more than two parties. Upon the death of any owner, the survivors take the descendant’s interest in the property.
LIEN: A legal hold or claim on property as security for a debt or charge.
LOAN TO VALUE RATIO (LTV): A ratio obtained by dividing the loan amount by the value of the property. Different loan programs have maximum different LTVs.
MORTGAGE LIFE INSURANCE: A type of term life insurance often bought by mortgagors. The coverage decreases as mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.
NEGATIVE AMORTIZATION: This occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover interest.
ORIGINATION FEE: A fee or charge for work involved in evaluating, preparing, and submitted a proposed mortgage loan.
POINTS: An amount equal to one percent of the loan amount. For example, one point on a $250,000 mortgage would be $2,500.
PREPAYMENT PENALTY: A fee charge to a mortgagor who pays a loan before it’s due
PRIVATE MORTGAGE INSURANCE (PMI): Insurance written by a private company protecting the lender against a loss if the borrower defaults on the mortgage.
RATE LOCK: This guarantees that the rate in effect when you apply will be the same when you close, if you close within a specific time frame. The time frame will vary depending on the loan that you select.
SURVEY: The process by which a parcel of land is measured and its area ascertained; also, the blueprint showing the measurements, boundaries, and area.
TERM: The time it will take to pay your mortgage in full. With a shorter term, you’ll pay less interest over the life of the loan but may pay more each month than with a loan with a longer term.
TITLE INSURANCE POLICY: A policy that protects the purchaser, mortgage or other party against loss. This guarantees that, if for any reason the title should have a defect or prove to be defective, the holder will receive just compensation.