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Glossary
Adjustable-rate loans, also known as variable-rate loans,
usually offer a lower initial interest rate than fixed-rate loans.
The interest rate fluctuates over the life of the loan based on
market conditions, but the loan agreement generally sets maximum
and minimum rates. When interest rates rise, generally so do your
loan payments; and when interest rates fall, your monthly payments
may be lowered.
Annual percentage rate (APR) is the cost of credit expressed
as a yearly rate. The APR includes the interest rate, points, broker
fees, and certain other credit charges that the borrower is required
to pay.
Conventional loans are mortgage loans other than those insured
or guaranteed by a government agency such as the FHA (Federal Housing
Administration), the VA (Veterans Administration), or the Rural
Development Services (formerly know as Farmers Home Administration,
or FmHA).
Escrow is the holding of money or documents by a neutral
third party prior to closing. It can also be an account held by
the lender (or servicer) into which a homeowner pays money for taxes
and insurance.
Fixed-rate loans generally have repayment terms of 15, 20,
or 30 years. Both the interest rate and the monthly payments (for
principal and interest) stay the same during the life of the loan.
The interest rate is the cost of borrowing money expressed
as a percentage rate. Interest rates can change because of market
conditions.
Loan origination fees are fees charged by the lender for
processing the loan and are often expressed as a percentage of the
loan amount.
Lock-in refers to a written agreement guaranteeing a home
buyer a specific interest rate on a home loan provided that the
loan is closed within a certain period of time, such as 60 or 90
days. Often the agreement also specifies the number of points to
be paid at closing.
A mortgage is a document signed by a borrower when a home
loan is made that gives the lender a right to take possession of
the property if the borrower fails to pay off the loan.
Overages are the difference between the lowest available
price and any higher price that the home buyer agrees to pay for
the loan. Loan officers and brokers are often allowed to keep some
or all of this difference as extra compensation.
Points are fees paid to the lender for the loan. One point
equals 1 percent of the loan amount. Points are usually paid in
cash at closing. In some cases, the money needed to pay points can
be borrowed, but doing so will increase the loan amount and the
total costs.
Private mortgage insurance (PMI) protects the lender against
a loss if a borrower defaults on the loan. It is usually required
for loans in which the down payment is less than 20 percent of the
sales price or, in a refinancing, when the amount financed is greater
than 80 percent of the appraised value.
Thrift institution is a general term for savings banks and
savings and loan associations.
Transaction, settlement, or closing costs may include application
fees; title examination, abstract of title, title insurance, and
property survey fees; fees for preparing deeds, mortgages, and settlement
documents; attorneys’ fees; recording fees; and notary, appraisal,
and credit report fees. Under the Real Estate Settlement Procedures
Act, the borrower receives a good faith estimate of closing costs
at the time of application or within three days of application.
The good faith estimate lists each expected cost either as an amount
or a range
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