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Glossary of Mortgage Terms
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Balloon Payment: Usually
associated with an Adjustable Rate Mortgage whereby a lump sum payment
for the unpaid balance of the loan becomes due.The phrase balloon
payment or bullet payment refers to one of two ways for repaying
a loan. The borrower must pay the amount in full when the balloon
term is due. More
on Balloon or Bullet Payment.
Cap:
Usually associated with an Adujtable Rate Mortgage. The cap defins
the maximum amount the interest rate or payment to be made up or
down during the life of the loan.
Cash Out: This term is normally
used when a borrower wants to refinance his current loan a take
cash payment out before the new loan is issued.
Ceiling: This term is normally
used when referring to the maxium interest rate elevation in an
adjustable rate mortgage.
Closing Cost: Real property
in most jurisdictions is conveyed from the seller to the buyer through
a real estate contract. The point in time at which the contract
is actually executed and the title to the property is conveyed to
the buyer is known as the "closing". It is common for a variety
of costs associated with the transaction (above and beyond the price
of the property itself) to be incurred by either the buyer or the
seller. These costs are typically paid at the closing, and are known
as closing costs. More
on Closing Cost
Conforming Loan:
A
conforming loan is a loan that meets bank funding criteria. Because
of its stake in the mortgage market and because of its history,
Fannie Mae and Freddie Mac each year set the limit on what constitutes
a conforming loan. These loans are usually under $250,000. More
on Conforming Loans
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| Contract
of Sale: A
contract of sale is a legal contract an exchange of goods, services
or property to be exchanged from seller (or vendor) to buyer (or purchaser)
for an agreed upon value in money (or money equivalent) paid or the
promise to pay same. It is a specific type of legal contract between
the buyer and the seller in a home or property exchange. |
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Credit
Limit: A credit limit
is the maximum amount of credit that a bank or other lender will
extend to a debtor, or the maximum that a credit card company will
allow a card holder to borrow on a single card. Some lenders will
allow a borrower to exceed this limit, but then subject the borrower
to fines or penalties.
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| Debt
Service: The total amount
of money owed whether it be credit cards, home mortgage, auto loans
that is currently being serviced by an individual looking for a new
mortgage loan. |
| Deed:
A deed is a legal instrument
used to grant a right. The deed is best known as the method of transferring
title to real estate from one person to another, often using a description
of its "metes and bounds." However, by the general definition, powers
of attorney, commissions, patents, and even diplomas conferring academic
degrees are also deeds. More
on Deeds |
| Discount
Points: A discount point, sometimes also
called a " point". It is one of the important factors in the calculation
of the annual percentage rate for a mortgage loan. One point is one
percent of the loan amount. IF the loan is $100,000 then the discount
point would be 1 percent or $1,000. More
on Discount Points. |
| Effective
Interest Rate: The effective interest
rate, effective annual interest rate, or simply effective rate is
the interest rate on a loan or financial product restated from the
nominal interest rate as an interest rate with annual compound interest.
More
on Effective Interest Rate |
| Encumbrance:
An encumbrance (sometimes referred to,
particularly in the United States as an incumbrance) is a legal term
of art for anything that affects or limits the title of a property,
such as mortgages, leases, easements, liens, or restrictions. Also,
those considered as potentially making the title defeasible are also
encumbrances. For example, charging orders, building orders and structure
alteration. This could effect the ability to transfer the ownership
of the property. |
| Equity:
Is the difference between mortgage(s)
owed on a property and the current market value. Home equity has a
zero rate of return and is not liquid. Home equity management is the
process of putting otherwise lazy idle dollars to work in a liquid,
safe, tax favored, way to create an arbitrage. Arbitrage, simply put,
is borrowing money at one rate and earning a higher rate elsewhere.
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