MortgageByAngie

Terms

Michigan Home Mortgage

by MortgageByAngie.com

Adjustable Rate Mortgage (ARM)- A type of mortgage loan on which payments may be adjusted as frequently as each month based on changes in the ARM interest rate index. (Each individual contract may stipulate interest rate limits and frequency of payment adjustments, known as caps.

Amortization- The repayment of a debt in a specified number of equal periodic installments that may include a portion of principal and accrued interest.

Annual Percentage Rate (APR)- The annual cost of a mortgage, including interest, loan fees and other costs.

Appraised Value- The estimated value of a home established by a professional who has a knowledge of real estate prices and markets.

Assumability- The ability of a mortgage to be taken over by a new borrower.

Debt-to-income Ratio- The ratio of monthly debt payments to monthly gross income. Lenders use a housing ratio (mortgage payment divided by monthly income) and a total ratio (all debt including the mortgage payment) to determine whether a borrower's income qualifies him or her for a mortgage.

Down Payment- The amount of the purchase price a buyer pays, in cash, at the time the loan closes.

FHA Loan_ A loan insured by the Department of Housing and Urban Development of the Federal Housing Administration.

Fixed Rate Mortgage- A mortgage loan with a constant interest rate and payment throughout the life of the loan. The interest rate and payment amount are established at the time of origination.

Fully Indexed interest Rate- This interest rate is the sum of the index rate on an adjustable rate mortgage plus the margin.

Index- Any number of economic indicators lenders use to calculate interest rate adjustments for adjustable rate mortgages. Examples include the 12-MTA, 11the District Cost of Funds, and LIBOR rates.

Initial Interest Rate- The introductory rate on an ARM, which usually changes at the first rate adjustment.

Interest Rate Cap- The most the interest rate on an ARM can increase or decrease at each adjustment period.

Lifetime Interest Rate Cap- The maximum the interest rate on an ARM can increase or decrease over the life of the loan. Sometimes this is called the "ceiling rate".

Loan-to-Value- The ratio that the principal amount of the loan has to the property's appraised value. You may see this represented as an 80% loan or, a 95% LTV.

Margin- Margin or spread is the difference between the interest rate charged on a loan and the index. The Margin remains fixed over the life of the loan.

Owner Occupied (OO)- A residence lived in by the borrower.

Payment Cap- The limit that the monthly payment can change from one adjustment period to another.

Private Mortgage Insurance (PMI)- An insurance policy offered by a private company to protect a lender against loss on a defaulted mortgage loan. Usually, PMI is required only for loans with a high loan-to-value ratio. The borrower usually pays the PMI premiums.

Points- An amount equal to a % of the principal amount of the mortgage. Points are a one-time charge.

Prepayment Penalty- A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans.

Principal- The amount of the mortgage loan.

Purchase Price- The total selling price of the home, which includes the cash down payment and the principal on the loan.

Refinance- Homeowners usually consider refinancing to reduce their monthly mortgage payment or to draw from the equity that has build up over a period of time. This is used to pay off an existing mortgage loan.

Title Insurance- The insurance that protects the lender and the homeowner against loss resulting from any inconsistencies in the title of a property.

VA Loan- A loan that is partially guaranteed by the Veterans Administration and made by a private Lender.