REFINANCE LOAN CENTER
Refinance Guide Kit
Refinance Rates Calculator
Define Fixed Rate Mortgage
mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
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Define Adjustable rate mortgage (ARM)
mortgage in which the interest rate is adjusted periodically based on a
preselected index. Also sometimes known as the re negotiable rate
mortgage, the variable rate mortgage or the Canadian rollover mortgage.
- Define Mortgage Acceleration
- The right
of the mortgagee (lender) to demand the immediate repayment of the
mortgage loan balance upon the default of the mortgagor (borrower), or
by using the right vested in the Due-on-Sale Clause.
Define Adjustment interval
adjustable rate mortgage, the time between changes in the interest rate
and/or monthly payment, typically one, three or five years, depending on
payment by equal periodic payment calculated to pay off the debt at the
end of a fixed period, including accrued interest on the outstanding
Define Annual percentage rate (A.P.R.)
interest rate reflecting the cost of a mortgage as a yearly rate. This
rate is likely to be higher than the stated note rate or advertised rate
on the mortgage, because it takes into account point and other credit
cost. the APR allows home buyers to compare different types of mortgages
based on the annual cost for each loan.
estimate of the value of property, made by a qualified professional
called an "appraiser".
tax levied against a property for a specific purpose, such as a sewer or
agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can
usually save the buyer money since this is an existing mortgage debt,
unlike a new mortgage where closing cost and new, probably higher,
market-rate interest charges will apply.
Balloon (payment) mortgage
short-term fixed-rate loan which involves small payments for a certain
period of time and one large payment for the remaining amount of the
principal at a time specified in the contract.
Define Blanket Mortgage
covering at least two pieces of real estate as security for the same
applies for and receives a loan in the form of a mortgage with the
intention of repaying the loan in full
individual in the business of assisting in arranging funding or
negotiating contracts for a client buy who does not loan the money
himself. Brokers usually charge a fee or receive a commission for their
lender and/or the home builder subsidized the mortgage by lowering the
interest rate during the first few years of the loan. While the payments
are initially low, they will increase when the subsidy expires.
of cash derived over a certain period of time from an income-producing
property. The cash flow should be large enough to pay the expenses of
the income producing property (mortgage payment, maintenance, utilities,
safeguards which limit the amount the interest rate on an adjustable
rate mortgage may change per year and/or the life of the loan.
safeguards which limit the amount monthly payments on an adjustable rate
mortgage may change.
Certificate of Eligibility
document given to qualified veterans which entitles them to VA
guaranteed loans for homes, business, and mobile homes. certificates of
eligibility may be obtained by sending DD-214 (Separation Paper) to the
local VA office with VA form 1880 (request for Certificate of
Certificate of Reasonable Value (CRV)
appraisal issued by the Veterans Administration showing the property's
current market value
Certificate of veteran status
document given to veterans or reservists who have served 90 days of
continuous active duty (including training time) It may be obtained by
sending DD 214 to the local VA office with form 26-8261a (request for
certificate of veteran status. This document enables veterans to obtain
lower down payments on certain FHA insured loans).
meeting between the buyer, seller and lender or their agents where the
property and funds legally change hands. Also called settlement. closing
costs usually include an origination fee, discount points, appraisal
fee, title search and insurance, survey, taxes, deed recording fee,
credit report charge and other costs assessed at settlement. The cost of
closing usually are about 3 percent to 6 percent of the mortgage amount.
by a lender to make a loan on specific terms or conditions to a borrower
or builder. A promise by an investor to purchase mortgages from a lender
with specific terms or conditions. an agreement, often inwriting,
between a lender and a borrower to loan money at a future date subject
to the completion of paperwork or compliance with stated conditions.
Define Construction loan
term interim loan to pay for the construction of buildings or homes.
These are usually designed to provide periodic disbursements to the
builder as he progresses.
Contract sale or deed:
between purchaser and a seller of real estate to convey title after
certain conditions have been met. It is a form of installment sale.
not insured by FHA or guaranteed by the VA.
Define Credit Report
documenting the credit history and current status of a borrower's credit
expressed as a percentage, which results when a borrower's monthly
payment obligation on long-term debts is divided by his or her gross
monthly income. See housing expenses-to-income ratio.
Define Deed of trust
states, this document is used in place of a mortgage to secure the
payment of a note.
meet legal obligations in a contract, specifically, failure to make the
monthly payments on a mortgage.
mortgage is written with a monthly payment that is less than required to
satisfy the note rate, the unpaid interest is deferred by adding it to
the loan balance.
make payments on time. this can lead to foreclosure.
Department of Veterans Affairs (VA)
independent agency of the federal government which guarantees long-term,
low-or no-down payment mortgages to eligible veterans.
to make up the difference between the purchase price and the mortgage
provision in a mortgage or deed of trust that allows the lender to
demand immediate payment of the balance of the mortgage if the mortgage
holder sells the home.
given by a buyer to a seller as part of the purchase price to bind a
transaction or assure payment.
home loan benefit is called entitlement. Entitlement for a VA guaranteed
home loan. This is also known as eligibility.
Equal Credit Opportunity Act (ECOA)
federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status or receipt of income from
public assistance programs.
difference between the fair market value and current indebtedness, also
referred to as the owner's interest. The value an owner has in real
estate over and above the obligation against the property.
held by the lender into which the home buyer pays money for tax or
insurance payments. Also earnest deposits held pending loan closing.
seeFederal National Mortgage Association.
Farmers Home Administration (FmHA)
financing to farmers and other qualified borrowers who are unable to
obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
name for the regulatory and supervisory agency for federally chartered
savings institutions. Agency is now called the Office of Thrift
Federal Home Loan Mortgage Corporation(FHLMC)
also called "Freddie Mac",
quasi-governmental agency that purchases conventional mortgage from
insured depository institutions and HUD-approved mortgage bankers
Federal Housing Administration (FHA)
of the Department of Housing and Urban Development. Its main activity is
the insuring of residential mortgage loans made by private lenders. FHA
also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA)
also know as "Fannie Mae"
tax-paying corporation created by Congress that purchases and sells
conventional residential mortgages as well as those insured by FHA or
guaranteed by VA. This institution, which provides funds for one in
seven mortgages, makes mortgage money more available and more
insured by the Federal Housing Administration open to all qualified home
purchasers. While there are limits to the size of FHA loans ($155,250 as
of 1/1/96), they are generous enough to handle moderately-priced homes
almost anywhere in the country.
FHA mortgage insurance
fee (up to 2.25 percent of the loan amount) paid at closing to insure
the loan with FHA. In addition, FHA mortgage insurance requires an
annual fee of up to 0.5 percent of the current loan amount, paid in
monthly installments. The lower the down payment, the more years the fee
must be paid.
Federal Home Loan Mortgage Corporation provides a secondary market for
savings and loans by purchasing their conventional loans. Also known as
by FHA to insure a mortgage loam for a specified property and borrower.
A promise from a lender to make a mortgage loan.
Federal National Mortgage Association is a secondary mortgage
institution which is the largest single holder of home mortgages in the
United States. FNMA buys VA, FHA, and conventional mortgages from
primary lenders. Also known as "Fannie Mae."
process by which the lender or the seller forces a sale of a mortgaged
property because the borrower has not met the terms of the mortgage.
Also known as a repossession of property.
Federal Home Loan Mortgage Corporation
Government National Mortgage Association.
Government National Mortgage Association (GNMA)
Graduated Payment Mortgage (GPM)
A type of
flexible-payment mortgage where the payments increase for a specified
period of time and then level off. This type of mortgage has negative
amortization built into it.
by one party to pay a debt or perform an obligation contracted by
another if the original party fails to pay or perform according to a
A form of
insurance in which the insurance company protects the insured from
specified losses, such as fire, windstorm and the like.
Housing Expenses-to-Income Ratio
expressed as a percentage, which results when a borrower's housing
expenses are divided by his/her gross monthly income. See debt-to-income
portion of a borrower's monthly payments held by the lender or servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments,
and other items as they become due. Also known as reserves.
published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage and
that earned by other investments (such as one- three-, and five-year
U.S. Treasury security yields, the monthly average interest rate on
loans closed by savings and loan institutions, and the monthly average
costs-of-funds incurred by savings and loans), which is then used to
adjust the interest rate on an adjustable mortgage up or down.
construction loam made during completion of a building or a project. A
permanent loan usually replaces this loan after completion.
source for a lender.
Define Jumbo Loan
which is larger (more than $214,600 as of 1/1/97) than the limits set by
the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher interest rate.
upon a piece of property for the payment or satisfaction of a debt or
Define Loan-to-Value Ratio
relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage.
a lender adds to the index on an adjustable rate mortgage to establish
the adjusted interest rate.
highest price that a buyer would pay and the lowest price a seller would
accept on a property. Market value may be different from the price a
property could actually be sold for at a given time.
Define MIP (Mortgage Insurance Premium)
insurance from FHA to the lender against incurring a loss on account of
the borrower's default.
to insure the mortgage when the down payment is less than 20 percent.
See private mortgage insurance, FHA mortgage insurance.
borrower or homeowner
Define Negative Amortization
when your monthly payments are not large enough to pay all the interest
due on the loan. This unpaid interest is added to the unpaid balance of
the loan. the danger of negative amortization is that the home buyer
ends up owing more than the original amount of the loan.
Net Effective Income
borrower's gross income minus federal income tax.
Non Assumption Clause
statement in a mortgage contract forbidding the assumption of the
mortgage without the prior approval of the lender. Note: The signed
obligation to pay a debt, as a mortgage note.
Office of Thrift Supervision (OTS)
regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
Define Origination Fee
charged by a lender to prepare loan documents, make credit checks,
inspect and sometimes appraise a property; usually computed as a
percentage of the face value of the loan.
term mortgage, usually ten years or more. Also called an "end
Interest, Taxes and Insurance. Also called monthly housing expense.
Pledged account Mortgage (PAM):
placed in a pledged savings account and this fund plus earned interest
is gradually used to reduce mortgage payments.
Define Points (loan discount points)
interest assessed at closing by the lender. Each point is equal to 1
percent of the loan amount (e.g., two points on a $100,000 mortgage
would cost $2,000).
Power of Attorney
document authorizing one person to act on behalf of another.
to create an escrow account or to adjust the seller's existing escrow
account. Can include taxes, hazard insurance, private mortgage insurance
and special assessments.
privilege in a mortgage permitting the borrower to make payments in
advance of their due date.
charged for an early repayment of debt. Prepayment penalties are allowed
in some form (but not necessarily imposed) in many states.
Primary Mortgage Market
making mortgage loans directly to borrower's such as savings and loan
associations, commercial banks, and mortgage companies. These lenders
sometimes sell their mortgages into the secondary mortgage markets such
as to FNMA or GNMA, etc.
of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
event that you do not have a 20 percent down payment, lenders will allow
a smaller down payment - as low as 5 percent in some cases. With the
smaller down payment loans, however, borrowers are usually required to
carry private mortgage insurance. Private mortgage insurance will
usually require an initial premium payment and may require an additional
monthly fee depending on you loan's structure.
estate broker or an associate holding active membership in a local real
estate board affiliated with the National Association of Realtors.
Define Right Of Rescission
cancellation of a contract. With respect to mortgage refinancing, the
law that gives the homeowner three days to cancel a contract in some
cases once it is signed if the transaction uses equity in the home as
to the lender for recording a home sale with the local authorities,
thereby making it part of the public records.
a new mortgage loan on a property already owned. Often to replace
existing loans on the property.
Renegotiable Rate Mortgage
a loan in
which the interest rate is adjusted periodically. See adjustable
the Real Estate Settlement Procedures Act. RESPA is a federal law that
allows consumers to review information on known or estimated settlement
cost once after application and once prior to or at a settlement. The
law requires lenders to furnish the information after application only.
Reverse Annuity Mortgage (RAM)
a form of
mortgage in which the lender makes periodic payments to the borrower
using the borrower's equity in the home as
Satisfaction of Mortgage: The
document issued by the mortgagee when the mortgage loam is paid in full.
Also called a "release of mortgage."
made subsequent to another mortgage and subordinate to the first one.
Secondary Mortgage Market
where primary mortgage lenders sell the mortgages they make to obtain
more funds to originate more new loans. It provides liquidity for the
steps and operations a lender performs to keep a loan in good standing,
such as collection of payments, payment of taxes, insurance, property
inspections and the like.
Shared Appreciation Mortgage (SAM)
in which a borrower receives a below-market interest rate in return for
which the lender (or another investor such as a family member or other
partner) receives a portion of the future appreciation in the value of
the property. May also apply to mortgage where the borrowers shares the
monthly principal and interest payments with another party in exchange
for part of the appreciation.
which is computed only on the principle balance.
measurement of land, prepared by a registered land surveyor, showing the
location of the land with reference to know points, its dimensions, and
the location and dimensions of any buildings.
created by a purchaser performing work on a property being purchased.
that gives evidence of an individual's ownership of property.
Define Title Insurance
usually issued by a title insurance company, which insures a home buyer
against errors in the title search. The cost of the policy is usually a
function of the value of the property, and is often borne by the
purchaser and/or seller. Policies are also available to protect the
examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
law requiring disclosure of the Annual Percentage Rate to home buyers
shortly after they apply for the loan. Also known as Regulation Z.
in which the borrower receives a below-market interest rate for a
specified number of years (most often seven or 10), and then receives a
new interest rate adjusted (within certain limits) to market conditions
at that time. the lender sometimes has the option to call the loan due
with 30 days notice at the end of seven or 10 years. also called
"Super Seven" or "Premier" mortgage.
decision whether to make a loan to a potential home buyer based on
credit, employment, assets, and other factors and the matching of this
risk to an appropriate rate and term or loan amount.
charged in excess of the legal rate established by law.
long-term, low-or no-down payment loan guaranteed by the Department of
Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
Mortgage Funding Fee
of up to 1-7/8 percent (depending on the size of the down payment) paid
on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down
payment, this would amount to $1,406 either paid at closing or added to
Variable Rate Mortgage (VRM)
adjustable rate mortgage
Verification of Deposit (VOD)
signed by the borrower's financial institution verifying the status and
balance of his/her financial accounts.
Verification of Employment (VOE)
signed by the borrower's employer verifying his/her position and salary.
mortgage firms must borrow funds on a short term basis in order to
originate loans which are to be sold later in the secondary mortgage
market (or to investors). When the prime rate of interest is higher on
short term loans than on mortgage loans, the mortgage firm has an
economic loss which is offset by charging a warehouse fee.
when an existing assumable loan is combined with a new loan, resulting
in an interest rate somewhere between the old rate and the current
market rate. The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first lender after
taking the additional amount off the top.
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Rate Are Low. Is Now A Good Time To Refinance?
When interest rates fall, a homeowner should definitely call a
lender about refinancing, but he or she should discuss their entire
financial situation and goals before making any final decision.
goal to lower your monthly payment? Consolidate debts? Get cash out for
large purchases? Change your interest deduction expense for your taxes?
After Applying for a refinance quote ask
the lender offering
best rates to provide a couple of refinancing scenarios for you,
showing how your loan term length, monthly payment and your total interest
expense on the loan will change.
After looking at these scenarios, it will
be clear whether or not you should refinance.