Adjustable Rate Mortgage (ARM): A mortgage whose interest rate and monthly payments vary throughout its life. The purpose of an adjustable interest rate is to match it with market rates, thus the interest on ARMs tends to rise and fall alongside the economic market. ARMs usually start with lower rates than fixed rate mortgages in order to compensate the borrower for the additional risk that future interest rate fluctuations will create.
Amortization: Lender term for the process of gradually paying down a debt, usually by making monthly payments throughout the loan’s term. Such payments must be sufficient to cover both the principal and interest.
Annual Percentage Rate (APR): The total yearly cost of a mortgage expressed as a percentage. It includes the base interest rate, insurance, and the origination fee (if any charged to you). Because these are included, the APR is invariably higher than the rate of interest that the lender quotes for the mortgage, but the APR gives a more accurate description of the likely cost of the loan.
Appreciation: When the value of a property increases.
ARM Indexes: Indicators that control adjustments in the interest rates of an ARM. The interest of an ARM goes up and down alongside a nationally published index. The index is agreed upon at loan origination.
Assessed Value: The dollar value of a property (assigned by a public tax assessor) for the purpose of determining property taxes.
Cash Reserves: Cash remaining after the closing of a mortgage that is used to make the first two mortgage payments or to cover a financial emergency. This amount is required by most mortgage lenders.
Closing Costs: Costs that generally total from 2 to 5 percent of a home’s purchase price and are completely independent of the down payment. Closing costs could include the appraisal fee, credit report fee, mortgage interest for the period between the closing date and the first loan payment, homeowner’s insurance premium, title insurance, prorated property tax, points, or recording and transferring charges.
Debt-to-Income Ratio: Measures your future monthly housing expenses (including your proposed mortgage payment, property tax, and insurance) in relation to your monthly income.
Equity: Refers to the difference between the market value of a home and the amount the borrower owes on it.
Fixed Rate Mortgage: Allows you to lock in an interest rate for the entire term of the mortgage. Mortgage payments will be the same amount every month.
Foreclosure: The legal process by which a lender takes possession of a property and sells with the intention of satisfying a mortgage debt on which the owner of the property has defaulted.
Home Equity: The market value of a home minus any debt against it.
Hybrid Loans: Loans that combine features of fixed rate and adjustable rate mortgages. The initial rate for a hybrid loan may be fixed at the same rate for the first three to ten years of the loan, after which the interest rate adjusts annually or biannually.
Index: A measure of the overall level of market interest rates that a lender uses as a reference in order to calculate the specific interest rate on an adjustable rate loan. The index determines adjustments in the interest rate on an adjustable rate mortgage.
Interest Rate: A rate charged or paid for the use of money, generally accumulated as a percentage of the amount borrowed and quoted in percent per year.
Jumbo Loans: Mortgages with a loan that exceed the standards conforming Fannie Mae or Freddie Mac regarding the maximum permissible loan amounts. Rates tend to be higher on jumbo loans because lenders generally have a higher risk.
Margin: A constant amount that is added to the value of the index in order to calculate the interest rate for an adjustable rate mortgage. The lender determines the margin at the time the loan closes. The margin will remain fixed during the entire term of the loan and can never be impacted by changes in the economy.
Negative Amortization: A gradual increase in mortgage debt that occurs when an outstanding mortgage balance increases regardless of the fact that the borrower is making the required monthly payments. The monthly payments are insufficient to cover the interest owed. Origination: The administrative process of making a mortgage, including the process of attracting and qualifying a borrower, and the preparation of documents.
Points (Loan Origination Fee): Interest charges paid upfront when a borrower closes on a loan. Also known as a loan’s origination fee, points are a percentage of the total loan amount. One point is equal to 1 percent of the loan. At Integrity Mortgage we customarily do not charge any points. We are lender paid.
Preapproval: A process that mortgage lenders use to determine how much money they will lend based on a review of an individual’s financial situation.
Principal: The amount borrowed for a loan, or the part of the amount borrowed which remains unpaid (excluding interest).
Refinance: A lending term for taking out a new mortgage loan, using the same property as collateral, to pay off an existing mortgage that generally has a higher interest rate. Other reasons for refinancing are to reduce the term of a longer mortgage, or to switch between a fixed-rate and an adjustable rate mortgage.
Reverse Mortgage: A loan that enables elderly homeowners to borrow against their home’s equity without selling their home or moving from it. By doing this, they are able to receive regular monthly payments, tax free, from the lender. Essentially, this money is a loan against the value of a home.
Teaser Rate: The attractively low, but temporary, introduction interest rate that most adjustable rate mortgages start with. This rate is also known as the initial rate. At Integrity Mortgage we will NEVER offer teaser rates.