Fixed Rate Mortgages

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Fixed Rate Mortgages

The traditional fixed rate mortgage is the most common type of loan programs, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and can be paid off at any time without penalty. This type of mortgage is structured, or 'amortized' so that it will be completely paid off by the end of the loan term. There are also 'bi-weekly' mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 'months' worth, every year.)

Even though you have a fixed rate mortgage, your monthly payment may vary if you have an 'impound account'. In addition to the monthly loan payment, some lenders collect additional money each month (from folks who put less than 20% cash down when purchasing their home) for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers' property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower's monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable

Speak The Mortgage Lingo: Mortgage Glossary W,X,Y,Z

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Wraparound Results 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.

Zoning The division of a city or county by legislative regulations into areas (zones) specifying the uses allowable for the real property in these areas.

Speak The Mortgage Lingo: Mortgage Glossary U, V

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Underwriting The decision whether to make a loan to a potential homebuyers based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA VETERANS ADMINISTRATION

VA Loan A 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.

VA Mortgage Funding Fee A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.

Verification of Deposit (VOD) A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE) A document signed by the borrower's employer verifying his/her position and salary.

Speak The Mortgage Lingo: Mortgage Glossary T

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Tenants in Common A percentage interest in a property by two or more individuals without rights of survivorship.

Term Mortgage See Balloon Payment Mortgage.

Title Insurance The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.
Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Title A document that gives evidence of an individual's ownership of property.

Trust Deed The Trust Deed attaches the note as a lien on the property. This is the document which conveys the ability to collect from the proceeds of the property.

Truth-in-Lending A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan. Also known as a TIL

Two-Step Mortgage A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), 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 within 30 days notice at the end of seven or 10 years. Also called 'Super Seven' or 'Premier' mortgage.

Speak The Mortgage Lingo: Mortgage Glossary S

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S.I. / Statement of Information The form the customer fills out for the title company giving further identification of the customer. This allows the title company to eliminate debts and liens owed by people with similar names.

Second Mortgage A mortgage which is entered after the primary loan. Called a second due to it being the second lien position to the first mortgage. See also Secondary Financing.

Secondary Financing Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a 'piggyback' loan.

Servicing All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement Costs See Closing Costs.

Settlement See Closing.

Shared Appreciation Mortgage (SAM) A mortgage in which a borrower receives a below-market interest rate in return for which a 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 mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Submission This refers to a complete loan application package submitted for approval to the underwriting department.

Subordination Agreement The agreement detailing the contingencies of subordination, filed with the county recorder. If a lien holder agrees to accept a lien position after that of a later recorded lien.

Substitution of Trustee A document, filed by the beneficiary, which changes the trustee on a particular trust deed.

Surety Bond A bond which ensures against harm to a party (usually the lender or owner) by a lien still attached to the proper

Speak The Mortgage Lingo: Mortgage Glossary R

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Rate Float Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.

Rate Lock Choosing to have no change to a rate for a specific length of time.

Ratios How a buyers housing expense and debt picture relates to their income.

Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Realtor A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Rescission The 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 security.
Recon / Reconveyance A release of lien filed with the county recorder by the trustee.

Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFI Slang for refinance, or a new mortgage on a property that does not change ownership.

Request for Reconveyance Verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.

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 security.

Speak The Mortgage Lingo: Mortgage Glossary Q

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Quit Claim A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Speak The Mortgage Lingo: Mortgage Glossary P

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P & I Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.

P & L / Profit and Loss A statement of a businesses gross income, cost of goods, operating costs and net profit or loss.

P.I.T.I. Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.

P.U.D. Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.

Piggy Back Loan Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

PMI Private Mortgage Insurance A way for lenders and the buyers to insure their exposure on the loan to no less than 20% equity in a property.
Points A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.

Power of Attorney An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.

PRE-Approval The Buyer has actually begun the application process and an underwriter has approved their income, funds and credit. Beware of any conditions on the approval.

Prelim. / Preliminary Title Report The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.

Prepaid Interest Charge The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids Expenses necessary 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.

Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PRE-Qualified Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. PRE-Qualification is only an indication of what the buyer should qualify for.

Principal The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payments, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30. (PMI)

Purchase Agreement The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.

Speak The Mortgage Lingo: Mortgage Glossary O

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Obligations Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.

Origination Fee The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Owner Occupied Designation given to property used as the owner's residence.

Owners Policy A policy of the title insurance which protects the buyer against problems with the title.

Speak The Mortgage Lingo: Mortgage Glossary N

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Negative Amortization Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income The borrower's gross income minus federal income tax.

Non-Assumption Clause Statements in the mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-Owner Occupied A property not used as a residence by the owner of the property.

Notary Public A person, designated by the state, which can certify the identity of a person when signing various documents.

Note Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Speak The Mortgage Lingo: Mortgage Glossary M

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Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value The 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.

Mortgage Escrow Accounts The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.

Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance or FHA Mortgage Insurance.

Mortgagee The lender.

Mortgagor The borrower or homeowner.