Financial Terms Glossary

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lien
An encumbrance against property for money due, either voluntary or involuntary.

lender
The bank, mortgage company, or mortgage broker offering the loan.

LIBOR
LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.

lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

loan to value ratio (LTV)
The unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

lock period
The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

maturity date
A pre-set date informing account owners when they can withdraw principal funds without incurring a penalty. (Please note that you may withdraw any generated interest before reaching an account's maturity date at E-LOAN.)

mortgage
A legal document that pledges a property to the lender as security for payment of a debt

mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.

mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.

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negative amortization
Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."

non-conforming loan
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $333,701 and above.

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origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

owner financing
A property purchase transaction in which the property seller provides all or part of the financing.

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periodic cap
The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage payment.

planned unit developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

principal
This term refers to the total amount of money originally deposited into a Savings or CD account. When taking out a loan however, it refers to the amount of debt, not including interest.

private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

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qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

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rate
The annual rate of interest on a loan, expressed as a percentage of 100.

rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

rebate
Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).

refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.

residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

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seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

settlement
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or settlement agent to be disbursed upon the closing of a sale of real estate.

settlement account
The account in which a mortgage servicer holds the borrower's settlement payments prior to paying property expenses.

settlement analysis
The periodic examination of settlement accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

settlement collections 
Funds collected by the servicer and set aside in an settlement account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

settlement disbursements
The use of settlement funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

settlement payment
The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

simple interest
An amount earned on an account holder's principal, according to a specified rate. This does not include any compounding interest.

stated/documented income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

subordination
If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.

survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

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tenants in common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.

title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

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variable rate
An interest rate that may change once an account opens.

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