Diversified Lending - Above & Beyond Your Expectation

Dictionary of Lending Terms

Here are some of the most frequently used lending terms and their meanings:

  • Adjustable Rate Mortgage (ARM): A loan with an interest rate that adjusts according to market changes.
  • Amortization: A payment plan by which payment plan by which a loan is reduced through monthly payments of principal and interest.
  • Annual Percentage Rate: The annual cost of credit over the life of the loan, including interest service charges, points, loan fees, mortgage insurance, and other items.
  • Appraisal: An evaluation of property to determine today’s market value.
  • Appreciation: The increase in the value of property.
  • Assessment: This is the value given to a property by a tax authority.
  • Assumption: A transaction allowing the buyer to take over the loan with the loan staying in the sellers name instead of the buyer getting a new loan.
  • Balloon: A loan with regular monthly payments with a lump sum due at a specific time.
  • Cap: Limits the amount an interest rate on an ARM loan can adjust during a period of the loan or over the life of the loan.
  • Closing: A meeting where all documents are signed to transfer ownership of property from seller to buyer or to sign documents in order to complete a refinance.
  • Closing Costs: Charges paid at closing for obtaining a mortgage and transfer of title.
  • Conditions: These are the stipulations that need to be met for the lender in order to close the loan.
  • Conventional Loan: A mortgage loan not insured by a government agency.
  • Credit Rating: A report ordered by lender from a credit bureau to determine if the borrower is a good credit risk.
  • Down payment: This is usually paid at closing. This is the difference between the sales price and the mortgage loan amount.
  • Earnest Money: A sum of money paid to the seller to show that the buyer is serious about purchasing the home. This money is then applied to closing costs or down payment.
  • Equity: The difference between the amount owed and the value of the home.
  • Escrow: The handling of funds or documents by a third party on behalf of the buyer or seller. This is how your taxes and insurance are paid if they are included as part of your monthly payment.
  • Fixed Rate Mortgage: A mortgage in which the interest rate will not change over the life of the loan.
  • Hazard Insurance: Protection against natural disasters such as fire, wind, or other common hazards.
  • Joint Tenancy: This is where two parties own a property equally and if one is to pass away the other would own the property.
  • Mortgage Broker: One who represents numerous lenders and helps consumers find affordable mortgages. The broker charges a fee only if the consumer finds a mortgage.
  • Mortgage Commitment: This is where a lender commits to the terms on a specific property, loan amount, length of time and conditions.
  • Mortgage Company: Borrows money from a bank, lends it to consumers to purchase a home, and then sells the loans to an investor.
  • Mortgagee: The lender who makes a mortgage loan.
  • Mortgage Origination Fee: A charge for the work involved in preparing and servicing a mortgage application, usually 1 percent of the loan amount.
  • Negative amortization: An increase in the principle amount because the minimum payment didn’t cover the monthly interest due.
  • Note: A formal document showing the existence of a debt and stating the terms of the note.
  • PITI (Principle, Interest, Taxes, Insurance): The four components of a usual payment if you decide to escrow.
  • Point: A one-time charge assessed by the lender to increase interest yield on a mortgage loan. Generally it is one percent.
  • Principle: The amount borrowed not including the interest and other charges.
  • Real Estate Settlement Procedures Act (RESPA): A law requiring lenders to provide homebuyers with information about known or estimated settlement costs.