Edmond Real Estate
Edmond Oklahoma real estate
Properties: Business and Residential: Financial Terms
Financial Terms
ADJUSTABLE-RATE MORTGAGE (ARM) - a mortgage with an interest rate
that changes periodically, according to an index that is selected
when the mortgage is issued. The initial interest rate is lower
than that for fixed-rate mortgages, but monthly payments can go up
or down when the rate is adjusted. Edmond Real Estate.
ADJUSTMENT INTERVAL - the period of time between changes in the
interest rate for an adjustable-rate mortgage. Typical adjustment
intervals are one year, three and five years
ANNUAL PERCENTAGE RATE (APR) - a stated interest rate that reflects
all the financing costs of a mortgage. The APR includes points,
origination fees and other finance charges in addition to the
interest on the mortgage, and includes them all in a yearly
interest rate. As a result, the APR is usually higher than the
interest rate alone. It also provides a benchmark for comparing
different types of mortgages based on the annual cost for each
loan.
APPRAISAL - an estimate of the value of a property, made by a
qualified professional called an appraiser.
BALLOON (PAYMENT) MORTGAGE - usually a short-term fixed-rate loan
which involves small payments for a certain period of time and one
large payment for the remaining amount of the principal at a time
specified in the contract.
BIWEEKLY MORTGAGE - a type of fixed-rate mortgage with payments for
half the usual monthly amount scheduled every two weeks. Because
you make the equivalent of 13 months of payments every year, the
loan term is shortened from 30 years to 18 or 19 years, and total
interest cost are substantially lower.
CAPS - consumer safeguards for adjustable-rate mortgages that limit
the amount monthly payments can increase. An interest rate cap
limits the amount the interest can change, while a payment cap
limits the increase in monthly payment to a specific dollar
amount.
CLOSING - the meeting between the buyer, seller and lender (or
their agents) where the property and funds legally change hands.
Also called settlement.
CLOSING COSTS - the costs and fees associated with the official
change in ownership of the property and with obtaining your
mortgage that are assessed at the closing or settlement. Closing
costs include required certifications, insurance, taxes and other
fees, and typically total between 3 and 6 percent of the mortgage
amount.
CREDIT REPORT - a report that documents a borrower's credit
history and current status. Borrowers can examine their own credit
reports, although most credit reporting companies charge a fee to
provide a report.
DEBT-TO-INCOME RATIO - the ratio, expressed as a percentage, which
results when a borrower's monthly payment obligation on
long-term debts is divided by his or her net effective income
(FHA/VA loans) or gross monthly income (conventional loans).
DOWN PAYMENT - an amount paid in cash to the seller when a home is
purchased. The down payment is the difference between the purchase
price and the mortgage amount, and is traditionally 10 to 20
percent of the purchase price, although many loans are now
available with smaller down payments.
EQUITY - the difference between the fair market value and current
indebtedness, also referred to as the owner's interest.
ESCROW - a special account set up by the lender in which money is
held to pay for taxes and insurance. "Escrow" can also
refer to a third party who carries out the instructions of both the
buyer and seller to handle the paperwork at the settlement.
FHA (FEDERAL HOUSING ADMINISTRATION) MORTGAGE - a loan insured by
the Federal Housing Administration. FHA mortgages require lower
down payments than conventional mortgages, and also feature less
stringent income and financial requirements.
FIXED-RATE MORTGAGE - a mortgage with an interest rate that remains
constant for the life of the loan. The most common fixed-rate
mortgage is repaid over a period of 30 years; 15 year fixed-rate
mortgages are also available.
INDEX - an economic indicator, usually a published interest rate,
that determines changes in the interest rate of an ARM. ARM rates
are adjusted to reflect changes in the index. The margin is the
amount a lender adds to the index to establish the actual interest
rate on an ARM.
INTEREST - the sum paid for borrowing money, which pays the
lender's costs of doing business.
LENDER BUY-DOWN MORTGAGE - a convertible mortgage offering a
discounted interest rate at the beginning of the loan that
gradually increases to an agreed-upon fixed-rate over the first few
years of the loan. It provides lower initial payments and a stable
final monthly rate, but the final rate may be somewhat higher than
on a standard fixed-rate mortgage.
LOAN ORIGINATION FEE - the fee charged by a lender to prepare all
the documents associated with your mortgage.
LOAN-TO-VALUE RATIO - the relationship between the amount of the
mortgage loan and the appraised value of the property expressed as
a percentage.
MORTGAGE INSURANCE - an insurance policy the borrower buys to
protect the lender from non-payment of the loan. Private mortgage
insurance policies are usually required if you make a down payment
that is below 20% of the appraised value of the home.
PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) - the four
components that (for most homeowners) are included in the monthly
mortgage payment. Principal and interest are the portions of the
payment assigned to repay the mortgage itself; taxes and insurance
are paid by your lender into a special escrow account to pay for
homeowners insurance and property taxes.
POINTS (LOAN DISCOUNT POINTS) - prepaid interest on a mortgage that
is usually paid at the time of closing. Each point is equal to one
percent of the total amount of a mortgage (one point on an $80,000
mortgage is $800, or 1 percent of 80,000). Most lenders offer
mortgages with several combinations of points and interest rates;
generally, the lower the interest rate, the more points you will
pay at settlement.
PRINCIPAL - the amount of debt, not including interest, left on a
loan; also the face amount of the mortgage.
TITLE INSURANCE - an insurance policy which insures you against
errors in the title search, essentially guaranteeing you and your
lender's financial interest in the property.
UNDERWRITING - the process of deciding whether to make a loan based
on credit, employment, assets and other factors.
VA (DEPARTMENT OF VETERANS AFFAIRS) MORTGAGE - government insured
loans guaranteed by the Department of Veterans Affairs, requiring
very low or no down payments and with generous requirements for
qualification. They are available only to veterans of the armed
services, those currently on active duty or in the reserves, and
their spouses.
Copyright 1995 Mortgage Bankers Association of America. All
rights reserved.
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