Home Loan Glossary

When it comes to home loan financing, there are a number of important terms that you must know in order to expedite your home loan process.

At Rush My Home Loan, we not only expedite home loans, we educate borrowers and help them become savvy loan applicants.

Our home glossary provides you with up to date home loan and real estate terms. Take notes and much success on your home loan application.

Adjustable Rate Mortgage (ARM)

A mortgage in which the Interest rate is adjustable; meaning that the rate can go up or down according to prevailing financial market conditions. When the rate goes up the monthly payment increases.

Annual Percentage Rate (APR)
This is the process of calculating a yearly rate interest rate based on your credit. An APR is a combination of interest rate, points, broker fees, and other credit charges. It usually depends on your credit history, your mortgage broker, your loan amount, and your payment terms.

Application Fee

This is a fee lenders charge for processing a loan. Some lenders charge a flat application fee, while other lenders add the application fee in the loan in the form of points or a higher interest rate.

Caps on Rates and Payments
Rate caps represent the maximum percent increase that can occur at each interval of adjustment. Payment Caps represent the maximum amount that a payment can go up at each interval adjustment.

Closing Costs

These are fees and costs associated with the mortgage transaction. They may include but are not limited to: points, origination fees, lender fees, title company charges, up front Mortgage Insurance Premiums (FHA), and transfer fees, etc.

Good Faith Estimate

This is a disclosure that must be provided by the lender to every mortgage loan applicant within three business days of an application. It lists the approximate costs/settlement charges to a borrower for a particular loan.

Indexes
These are guides lenders use to measure fluctuations in mortgage rates. Common indexes include the activity of one, three, and five-year Treasury securities. There are many others and each ARM (adjustable rate mortgage) is associated with a specific index. Some of the most common indexes are:

Margins
This is essentially a lender’s markup. It is an interest rate that represents the lender’s cost of doing business and the profit they will make on the loan. This is then added to the index rate to establish the final interest rate and normally lasts through the life of a home loan.

Mortgage Broker

A person or company offering an assortment of real estate loans from a variety of Mortgage Brokers can select the best loan or loans for a borrower, and then manage transaction with the lender on the borrower's behalf until the loan is closed

Mortgage Fraud

This is a term used to describe a broad variety of actions in which the intent is to materially misrepresent information on a mortgage loan application, in order to fraudulently obtain a loan.

Negative Amortization
Negative amortization occurs when the monthly payment doesn’t cover the cost of the interest. These types of loans offer payment caps as opposed to interest rate caps; which limits the amount the monthly payments can increase. Loans with a payment cap but no periodic interest rate cap may negatively amortize. If you are unable to make a monthly mortgage payment, any unpaid interest will be added to the loan balance, increasing the overall balance. Loans structured in this fashion can quickly put borrowers in a deep hole.

Payment Options
Represents how and when a mortgage is to be paid. Normally, there are a variety of payment options with every mortgage product. These options may vary depending on the credit history or the borrower(s), the loan amount and current market conditions.

Points
These are charges paid to the lender based on the loan, usually in cash at closing. One “point” is equal to one percent of the loan amount. You can borrow more in order to pay for points, but it will only increase to your total loan amount.

Predatory Mortgage Lenders

These are lenders who prey on the elderly, low-income, uneducated and unskilled borrowers. There are numerous traps they use to snare applicants; the end result is these borrowers won’t be able to afford these loans and end up in foreclosure

Private Mortgage Insurance (PMI)
This is for lenders who want to protect themselves from a loss if a borrower defaults on their loan. PMI is required for borrowers who choose not to or cannot afford the normal 20 percent down payment of the loan or when the amount financed is greater than 80 percent of the appraised value of the property.

Recasting or Recalculating your Loan
Recasting is an adjustment to a current mortgage, or a loan modification, that does not involve a new guaranty insurance certificate. This loan involves a modification to the type of instrument that is used. This can sometimes result in the borrower saving off of reduced mortgage payments if their financial situation has improved. To recalculate your loan you can use a simple online mortgage calculator.