There are a lot of unfamiliar terms that get tossed around during the mortgage process. Here is a short glossary of common terms that you may need a more clear description of.
Amortization
A loan repayment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal and interest.
Appraisal
An analysis performed by a qualified individual to determine the estimated value of a home.
Appraised Value
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.
Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.
Balloon Payment
The final payment that is made at the maturity date of a balloon mortgage and pays the loan in full.
Earnest Money
A sum of cash paid to a seller by a buyer prior to the closing to show that the buyer is serious about buying the house. The earnest money is deducted from the purchase price at closing and is not an additional cost. Sometimes referred to as a binder deposit.
Escrow
Funds paid by one party to another to hold until a specific date when the funds are released to a designated individual. Generally, an escrow account refers to the funds a mortgagor pays to the lender along with their monthly principal and interest payments for the payment of real estate taxes and hazard insurance. This is also referred to as impounds. The money is held by the lender to make payments when they are due. An escrow can also refer to funds that are held by a third party to ensure the completion of repairs or improvements that must be completed on the property but that cannot be done prior to closing.
Origination Fee
A fee charged by a lender as a way to cover processing expenses or to increase their profitability for originating a mortgage loan. Most commonly, the origination fee is expressed as a percent of the loan amount. For our comparison purposes, the origination fee is considered to be a lender fee.
Points
Fees that are collected by the lender in exchange for a lower interest rate. Commonly called discount points, each point is equal to 1% of the loan amount. For our comparison purposes, a discount point is considered to be a lender fee. To determine if it is wise to pay discount points to obtain a lower rate, you must compare the up front cost of the points to the monthly savings that result from obtaining the lower rate.
Prepayment Penalty
A monetary penalty charged by a lender if all or part of a loan is paid off before it is due.
Principal & Interest
The monthly payment required to repay a mortgage in accordance with its terms. Sometimes referred to as "P&I".
Private Mortgage Insurance
Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults. The cost of the insurance is usually paid by the borrower and is most often required if the loan amount is more than 80% of the home's value. Sometimes referred to as mortgage insurance.
Property Taxes
Taxes based on the assessed value of the home, paid by the homeowner for community services such as schools, public works, and other costs of local government. Sometimes paid as a part of the monthly mortgage payment.
Rate Lock
An agreement by a lender to guarantee the interest rate offered for a mortgage provided that the loan closes within the specified period of time.
Seller Credits
Seller credits are funds the seller gives to the buyer at closing to help pay for the buyer's loan closing costs. The seller credit amount allowed on a mortgage transaction can vary on the loan type.
Title Insurance
An insurance policy that protects the lender (and sometimes the property owner as well) against loss due to disputes over the ownership of a property and defects in the title that were not found in the search of the public record. For our comparison purposes, the title insurance cost is considered to be a third party fee.
Title Search
An examination of the public title records to determine the legal ownership of a property, and to ensure that there are no liens, encumbrances or other claims outstanding.
Underwriting Fee
A fee charged by some lenders to cover the cost of the lender's analysis of the risk associated with a loan. For our comparison purposes, an underwriting fee is considered to be a lender fee.
