Home Loan Workbook

Interest Rate Buy Down Plan - An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. Interest Rate Ceiling - For an adjustable-rate mortgage (ARM), the maximum interest rate as specified in the mortgage note. Interest Rate Floor - For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note. Investor - The holder of a mortgage or the permanent lender for whom the mortgage maker services the loan. Late Charge - The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date. Liabilitites - A person’s financial obligations. Liabilities include long-term and short-term debt. Lifetime Payment Cap - For an adjustable-rate mortgage (ARM), this is the limit on the amount that payments can increase or decrease over the life of the mortgage. Lifetime Rate Cap - For an adjustable-rate mortgage (ARM), this is the limit on the amount that the interest rate can increase or decrease over the life of the loan. Line of Credit - An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a particular time. Liquid Asset - A cash asset or an asset that can easily convert into cash. Loan to Value (LTV) - The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80%. Lock-In - The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application. Margin - The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. Maturity - The date the principal balance of a loan becomes due and payable. Monthly Fixed Installment - The portion of the total monthly payment that is applied toward a principal and interest. When a mortgage negatively amortized, the monthly fixed installment does not include any amount for the principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing. Mortgage - A legal document that pledges a property to the lender as security for payment of debt. Mortgage Banker - A company that originates mortgage exclusively for resale in the secondary mortgage market. Mortgage Broker - An indivudual or company that brings borrowers and lenders together for the purpose of a loan origination. Mortgage Insurance - A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage Insurance can be issued by a private company or by a government agency. Mortgage Insurance Premium (MIP) - The amount paid by a mortgagor for mortgage insurance. Mortgagor - The borrower in a mortgage agreement. Negative Amortization - 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, you could owe more than you did at the beginning of the loan. Negative amortization can occurr when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest due. Net Worth - The value of all of a person’s assets, including cash. Non Liquid Asset - An asset that cannot easily be converted into cash. Note - A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

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