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Mortgage Term Glossary

Mortgage Term Glossary

Adjustable Rate Mortgage (ARM): This is a type of mortgage loan product that may offer a lower upfront interest rate than a fixed rate loan, but your payments are subject to change after the initial fixed rate period of the loan. ARM’s have rate caps for adjustment periods as well as for the life of the loan that control the maximum interest rate change your loan is subject to.

Annual Percentage Rate (APR): The APR is the annual cost of your loan factoring in the interest rate, points, and certain charges you were required to pay in association with your home loan. The APR is not the interest rate. It is generally higher as it factors in the costs of your loan.

Application Fee: This is the fee a lender charges to apply for a mortgage. BCU does not charge this fee until you decide to lock your interest rate and/or to move forward with your loan by putting it into process.

Assets: Items of value that you own such as money in your bank account, mutual funds, retirement account, or even an automobile. Liquid assets are those that you can gain immediate access to such as funds in a checking or savings account.

Collateral: Property used to secure a loan. In the case of a home loan, the collateral is the subject property and land value.

Co-Borrower: Any additional person whose name appears on the closing documents and whose credit and income are used to qualify for the loan. A co-borrower has a joint obligation with the borrower to repay the loan.

Commitment Letter: A letter from your lender that outlines the terms under which your loan was approved.

Credit: The ability of a person to borrow money and pay it back over a period of time. It is granted by a lender based on an assessment of the applicant’s financial stability and ability to repay.

Credit Report: This is a document used by the lender to assess your use of credit and ability to repay. A credit report is ordered from a credit bureau as part of your home loan application process. It provides the lender with information on the amount that you have borrowed, the amount of available credit in your name, and your history of repayment.

Credit Score: This is a number generated through complex computer models to summarize with a “score” your credit profile and likelihood of future debt repayment. The higher your credit score, the better your credit. Please review your Credit Disclosure issued in your initial disclosure package for more information.

Default: This is the failure to pay a debt obligation such as a mortgage, auto loan, or credit card. It can also be the failure to adhere to the agreed upon terms of a contract.

Down Payment: This is the difference between the purchase price of your home and the mortgage loan amount.

Earnest Money: This is a deposit made from the buyer of a home to the seller to confirm the buyer’s interest in purchasing the home. The earnest money will be applied to your closing costs and/or towards your down payment at the time your loan goes to close. In the event you are not approved for a mortgage loan, the earnest money is typically refunded by the seller. To protect the potential buyer’s interest, it is advised that the purchase contract outlines the terms of such a refund.

Escrow: This is a deposit held in an “escrow account” from the borrower to the lender for the purpose of paying property taxes and/or insurance premiums when they become due. There may be an initial deposit to establish this account at the time of the loan closing. Ongoing payments into this account are made monthly along with the mortgage payment. An escrow account is typically required when the Loan-to-Value (LTV) exceeds 80%.

Equity: This is the value of your home over and above the total mortgage obligation you owe. This amount can fluctuate greatly over time based on your mortgage balance and also the changing home values in your local market area.

Fixed Rate Mortgage: This is a type of mortgage loan product that offers a fixed rate of interest for the life of the loan.

Foreclosure: A foreclosure is a legal action that ends all ownership rights when a homeowner falls delinquent or is in default under the terms of their mortgage.

Homeowners Insurance: This is an insurance policy that protects the homeowner and the lender against losses due to flood, fire, or other acts of nature.

Liabilities: A liability is a debt or other financial obligation. The required payments on all liabilities factor into your ability to qualify for a mortgage.

Lien: A claim on property for the repayment of debt. A lien is recorded and will be reflected on the title. An auto loan is a lien on your car. A mortgage loan is a lien on your home. Property taxes are also a lien. A lien gives the creditor the ability to foreclose or take title to your property in the event of default.

Lock-In-Confirmation: This is a document provided to you by the lender to guaranty a specific mortgage interest rate for a specific period of time.

Mortgage: A mortgage is a loan that uses your home as collateral. A mortgage can also refer to the actual document you sign that grants the lender a lien on your home.

Mortgage Insurance: This is insurance that protects the lender against loss in the event of default on a mortgage. Mortgage insurance is generally required on all loans over 80% Loan-to-Value.

Mortgage Lender: The lender provides financing for a mortgage loan. Mortgage lenders are also responsible for reviewing an applicant’s credit, financial stability, and property as well as assisting the applicant with the loan application process through the closing.

Mortgage Rate: The cost or interest rate you pay to the lender to borrower the money for purchasing or refinancing your home.

Mortgage Servicer: This is the entity responsible for collecting your monthly mortgage payments, managing your escrow account if applicable, reviewing your property for payment of taxes and insurance, and assisting you with your post-closing questions regarding your home loan.

Principal: This is the amount of money borrowed from the lender to purchase or refinance your home that has not yet been repaid. This does not include the interest you will pay to borrower the money.

Title: This is a document providing written evidence of the right to ownership in a property.

Title Insurance: This is insurance that provides protection to the lender (Lenders Policy) and/or buyers (Owners Policy) against loss arising from problems connecting to the title of the property.

Underwriting: This is the process that the lender uses to assess your ability to qualify for a mortgage loan. It involves a review of your financial stability, credit history, liabilities, debt to income ratios, and your overall ability to repay.