A loan characterized by a fluctuating interest
rate, usually one tied to a bank or savings and loan association cost of funds
Adjustable-rate mortgage (ARM)
A loan in which the principal as well as the
interest is payable in monthly or other periodic installments over the term of
A final payment of a mortgage loan that is
considerably larger than the required periodic payments because the loan amount
was not fully amortized.
A mortgage covering more than one parcel of real
estate, providing for each parcel’s partial release from the mortgage lien upon
repayment of a denite portion of the debt.
A financing technique used to reduce the monthly
payments for the first few years of a loan. Funds in the form of discount
points are given to the lender by the builder or seller to buy down or lower
the effective interest rate paid by the buyer, thus reducing the monthly
payments for a set time.
A form indicating the appraised value of a
property being financed with a VA loan.
Certificate of Reasonable Value (CRV)
Under the act, financial institutions are expected
to meet the deposit and credit needs of their communities; participate and
invest in local community development and rehabilitation projects; and
participate in loan programs for housing, small businesses, and small farms.
Community Reinvestment Act of 1977 (CRA)
An electronic network for handling loan
applications through remote computer terminals linked to various lenders’
Computerized Loan Origination (CLO)
See interim financing.
A loan that requires no insurance or guarantee.
The federal law that prohibits discrimination in
the extension of credit because of race, color, religion, national origin, sex,
age, or marital status
Equal Credit Opportunity Act (ECOA)
A government-sponsored enterprise established to
purchase any kind of mortgage loans in the secondary mortgage market from the
independent federal agency that insures the deposits in commercial banks.
Federal Deposit Insurance Corporation (FDIC)
The country’s central banking system, which is
responsible for the nation’s monetary policy by regulating the sup-ply of money
and interest rates.
Federal Reserve System (Fed)
A loan insured by the Federal Housing Administration
and made by an approved lender in accordance with the FHA’s regulations.
A government-sponsored enterprise established to
purchase primarily conventional mortgage loans in the secondary mortgage
agency that plays an important role in the secondary mortgage market. It
guarantees mortgage-backed securities using FHA and VA loans as collateral.
A loan in which the monthly payments increase
annually, with the increased amount being used to reduce directly the principal
balance outstanding and thus shorten the overall term of the loan.
Growing equity mortgage
A loan (sometimes called a line of credit) under
which a property owner uses his or her residences as collateral and can then
draw funds up to a prearranged amount against the property.
Home equity loan
An objective economic indicator to which the
interest rate for an adjustable-rate mortgage is tied.
A mortgage that only requires the payment of
interest for a stated period of time with the principal due at the end of the
The relationship between the amount of the
mortgage loan and the value of the real estate being pledged as collateral.
Loan To Value (LTV) ratio
A premium added to the index rate representing
the lender’s cost of doing business.
The FHA insurance that the borrower is charged
with a percentage of the loan as a premium.
Mortgage Insurance Premium (MIP)
A mortgage loan that is expandable by increments
up to a maximum dollar amount, the full loan being secured by the same original
A real estate loan used to finance the purchase
of both real property and personal property, such as in the purchase of a new
home that includes carpeting, window coverings, and major appliances.
The mortgage market in which loans are
originated and consisting of lenders such as commercial banks, savings
association, and mutual savings banks.
Primary mortgage market
Insurance provided by private carrier that
protects a lender against a loss in the event of a foreclosure and deficiency.
Private mortgage insurance (PMI)
A note secured by a mortgage or deed of trust
given by a buyer, as borrower, to a seller, as lender, as part of the purchase
price of the real estate.
Purchase-money mortgage (PMM)
The federal law that requires certain
disclosures to consumers about mortgage loan settlements. The law also
prohibits the payment or receipt of kickbacks and certain kinds of referral
Real Estate Settlement Procedures Act (RESPA)
Implements the Truth in Lending Act requiring
credit institutions to inform borrower of the true cost of obtaining credit.
A loan under which the homeowner receives
monthly payments based on his or her
accumulated equity rather than a lump sum. The loan must be repaid at a
prearranged date, upon the death of the owner, or upon the sale of the property
transaction in which an owner sells his or her improved property and, as part
of the same transaction, signs a long-term lease to remain in possession of the
Sale and lease back
A marker for the purchase and sale of existing
mortgage, designed to provide greater liquidity for mortgages; also called the
secondary money market. Mortgages are first originated in the primary mortgage
Secondary mortgage market
A loan in which only interest is paid during the
term of the loan, with the entire principal amount due with the final interest
Specific credit terms, such as down payment,
monthly payment, and amount of finance charge or terms of loan.
Federal government regulates the lending practices of mortgage lenders through this
Truth in Lending Act (TIL)
A mortgage loan on approved property made to a
qualified veteran by an authorized lender and guaranteed by the Department of
Veterans Affairs in order to limit the lender’s possible loss.
A method of refinancing in which the new
mortgage is placed in a secondary, or subordinate, position; the new mortgage
includes both the unpaid principal balance of the first mortgage and whatever
additional sums are advanced by the lender. In essence, it is an additional
mortgage in which another lender refinances a borrower by lending an amount
over the existing first mortgage amount without disturbing the existence of the