Glossary Of Terms I-P

Impound
That 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 or escrow amounts.

Index
A 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 US Treasury security yields), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial Adjustment CAP
The upper limit for the first rate adjustment on an adjustable interest rate mortgage loan.

Inquiries
An indication of credit investigations made by companies that are considering granting credit to a person who appears on the credit report.

Interest
Money charged over time for the use of money.

Interest Rate
A percentage used to calculate the amount charged for the use of money. Usually expressed as an annual percentage.

Joint Tenancy
A form of holding title in which the property is owned by 2 or more persons who may have rights of survivorship.

Judgment
The decision of a court of law; debts resulting from a court order for payment. Money judgments, when recorded, become a lien against the defendant’s property.

Jumbo Loan
A loan which is larger 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.

Lease Option to Purchase
A lease containing a clause that allows the tenant the right to purchase the property under specified conditions.

Leasehold Estate
A kind of real estate ownership through which the property owner doesn’t hold title to the property, but instead has use of the property subject to the terms of the lease.

Legal Description
A method of geographically identifying a parcel of land that is acceptable in a court of law.

Liabilities
The debts of a person or business.

LIBOR
An acronym for London Interbank Offered Rate, one of several published interest rate indices. It represents the average rate of interest that major London banks charge as they lend to one another.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Lifetime CAP
This is the cap that limits how high an interest rate can increase over the life of an adjustable-rate mortgage loan. Example: Start rate + 6% = lifetime Cap.

Lines of Credit
A type of mortgage loan from which borrowers can write a check or draw funds. Some lines of credit are also balloon loans. Usually the borrower is given 5 to 10 years to use the line of credit. After this period, many lines of credit require the borrower to pay the loan in full. Others may require the loan to be paid in full over the next 10 to 15 years.

Liquid Assets
Cash or assets, such as checking/savings accounts, stocks/bonds, that are immediately convertible to cash.

Loan Application (1003)
The form potential customers must complete to apply for a home loan. This application is commonly referred to as “the 1003” and is produced by the Federal government.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

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.

Mixed-Use Property
A property in which various portions of the property are used for different purposes such as industrial, retail, and residential. A retail store front with living space above would e a typical example.

MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

Mortgage
A written instrument that creates a lien upon real estate as collateral for the payment of a specified debt. The borrower retains possession and use of the property.

Mortgage Banker
A non-depository financial institution that specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.

Mortgage Broker
A mortgage broker is one who arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when the loan closes.

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

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.

Negative Amortization
Occurs 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 Disposable Income
Money left after subtracting the principal, interest, taxes and insurance and all other obligations from a borrower’s monthly net income. This is the amount the borrower has available for living expenses after housing expenses are subtracted.

Non-Conforming Loan
Home loans that do not meet the specified guidelines set by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

Non-Owner Occupied
A property used as a residence by a renter/tenant instead of the owner of the property.

Non-Recurring Closing Costs
Fees and costs associated with the closing of a loan, such as title, appraisal, notary fees, etc., that occur only once in the transaction.

Notary Public
One who is authorized by the state or Federal government to administer oaths and to attest to the authenticity of signatures.

Note
An agreement containing an expressed and absolute promise of the signer to pay to a named person or bearer a definite sum of money at a specified date or on demand. Usually provides for interest, and if concerning real property, is secured by a mortgage or trust deed.

Notice of Default (NOD)
A notice filed with a county records office to show that the borrower under a mortgage or deed of trust is in default.

Notice of Recision
Borrowers’ signed acknowledgement that they wish to cancel their loan. This generally must occur within a specified number of days after a loan closing.

Notice of Right to Cancel
Under Regulation Z, customers must be notified they are entering into a transaction that will result in a lien against their primary residence. This document explains they have the right to cancel the transaction, at no cost, within 3 business days from the date of signing the closing documents on a loan.

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

PAR
The principal amount of a mortgage with no premium or discount.

Pension Award Letter
Documentation specifying the frequency and amount of pension payments an individual is eligible to receive.

Periodic Adjustment Cap
This cap limits how much the interest rate can change in the future on an adjustable-rate mortgage.

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Planned Unit Development (PUD)
A single-family residence located in a community with association dues and other required monthly payments.

Plat Map
A map dividing a parcel of land into lots, as in a subdivision.

Points (Loan Discount Points)
Prepaid 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).

Pre-paid 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.

Pre-payment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Primary Residence
The property in which the customer resides the majority of the time.

Prime Rate Index
A rate index which is the prevailing rate that banks charge to lend money to corporations.

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

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

Principal, Interest, Taxes & Insurance (PITI)
The total of the monthly mortgage payment due, which includes all principal, interest, taxes and insurance.

Private Mortgage Insurance (PMI)
Insurance against a loss by a lender normally required in the event the lender has lent more than 80% of the value of the property securing the loan. The premium is paid by the borrower and is included in the mortgage payment.

Pro Rate
To divide in proportionate shares, such as taxes, insurance, rent or other items that buyer and seller share as of the time of closing, or other agreed upon time.

Profit and Loss Statement (P & L)
A statement documenting business revenues and expenses for a specified time period to establish whether a business gained a profit or suffered a loss.

Promissory Note
A written promise by the borrower to pay a debt owed, within a specified time, to the holder of the note under conditions mutually agreed upon.

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

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