Mortgage Loan Glossary
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Acre
A unit of measure for land, equivalent to 43,560 sq. feet or 4,840 sq. yards.
Adjustable rate mortgage (ARM)
A loan that has a fluctuating interest rate and monthly payment. ARMs start off with a fixed interest rate and monthly payment, but then adjust to reflect changes in the market interest rate. A 1-year ARM, for example, will have a fixed interest rate for 1 year and then will adjust on the second year, and continue to adjust annually over the life of the loan. Other common ARMs that adjust annually are: 3/1, 5/1, 7/1 and 10/1.
Adjustment date
The day when the interest rate changes on an adjustable rate mortgage (ARM). After an initial period where an ARM’s interest rate remains the same, the rate changes on the adjustment date to reflect the current market rate. It will continue to adjust annually over the life of the loan. For example, the first adjustment date for a 10/1 ARM is after 10 years after the day the loan closed.
Amortization schedule
A breakdown of monthly mortgage payments over the life of a loan that shows how much is applied to both the principal and interest. You can use an amortization schedule to figure out the equity you gain during your mortgage term. The longer you own a house, the more equity you gain. Even in the short run, the equity can still increase due to other factors, such as appreciation and capital improvements.
Annual Percentage Rate (APR)
A measurement used to compare different loans which takes into account both the interest rate and closing fees. Unlike an interest rate, an APR gives you a better picture when shopping for the best deal on a loan. An APR lets you see the total cost of a mortgage, including closing fees and lender points over the life of a loan – not just the interest due.
Anticipated settlement date
The estimated date to close the mortgage loan.
Appreciation
An increase in a property’s value. A home generally increases in value over time. If you buy a house for $100,000 and sell it one year later for $110,000, the house has appreciated by $10,000. Appreciation increases your net worth, as well as, your equity – the difference between your home’s market value and the amount of money you owe on your mortgage. The three main factors that affect the future value of your home are its location, condition, and the selling price of similar properties in the area.
Assessed value
The government’s estimate of a property’s value, which is used to calculate property taxes. Each county and state has its own formula to calculate property taxes, but for the most part, the assessed value is multiplied by the local tax rate. You’ll notice that the assessed value isn’t always equal to the actual value of a property.
Assumable mortgage
A loan that allows a home buyer to take over a seller’s mortgage when purchasing a home. When you assume a mortgage you inherit both its interest rate and monthly payment schedule. It can mean big savings if the interest rate on the existing mortgage is lower than the current rate on new loans.
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Borrower(s)
Individual(s) responsible for repayment of the loan.
Bridge loan
A loan for buyers who need money to close on a new home before they can sell their present home. Bridge loans are short-term, usually up to 1 year. Once the sale on the old home is finished, you can pay off the loan. Bridge loans are also called interim financing, swing loans or turnarounds.
Buy-down
A type of financing where the buyer or seller pays extra points (often called discount points) in return for a lower interest rate.
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Cap
The limit on how much the interest rate or monthly payment on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have several types of interest rate caps: (1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan; (2) the first adjustment cap, which limits the rate change on the ARM’s initial adjustment; and (3) the subsequent adjustment caps (also called periodic caps), which limit the rate changes on the following adjustment periods, even if the market interest rates significantly rise or fall during this time.
Cash-out refinance
When home owners apply for a refinance loan in an amount that exceeds the current balance with the purpose of paying off their present loan and pocketing the difference. Cash-out refinancing lets you take advantage of the equity that you’ve built over the years.
Cash reserves
Money put aside in case of a financial emergency. Most lenders want to know that you have enough savings and/or investments to provide a cushion for unexpected expenses in the future. Lenders typically require an amount that’s twice your monthly mortgage payment, however, this will vary by product.
Closing
The final procedure in which documents are signed and recorded, and the property is transferred or refinanced.
Closing agent
A third party who prepares the closing package and records the mortgage. This can be an attorney (in some states), escrow or title company. The final mortgage documents are typically signed at the closing agent’s office.
Closing costs
Fees that must be paid on (or before) the closing date by the buyer and/or seller in addition to the down payment.
Closing statement
A document that gives a breakdown of the buyer’s and seller’s closing costs. A closing statement gives you the final record of the fees paid at closing. A closing statement is also called a settlement statement or HUD-1.
Combined LTV
Loan-to-value percentage including all mortgages against your property/properties. Calculated by adding all proposed and existing mortgages divided by the property value.
Commitment letter
A formal offer from a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment”.
Comparable sale (comp)
A recent completed sale of a property that is used to estimate the value of a similar property.
Conforming loan
Conforming loans have a set of standards for the maximum loan amount you can borrow and how much you need to put towards a down payment.
Construction loan
A loan used to pay for land and for the construction of buildings and/or detached homes.
Conventional mortgage
Any loan granted by a non-governmental lender. Most loans are conventional, except for those insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
Credit and income pre-approval
This is an approval based on your credit history, income and assets. An appraisal of the property is required to obtain a full approval.
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Deed
A legal document that transfers ownership (title) of a property.
Deed of trust
A document that gives a CitiMortgage the right to sell your property if you can’t repay your loan. A deed of trust is similar to a mortgage contract except that a deed of trust involves a third party called a trustee, usually a title insurance company, who acts on behalf of the lender. When you sign a deed of trust, you are in effect giving the trustee title (ownership) of the property, but holding on to the right to use and live in it.
Discount point
A fee added to your closing costs in exchange for a lower interest rate on a loan. The basic idea of discount points is to pay up-front in order to save over the life of the loan. One discount point equals one percent of the loan amount.
Down payment
The portion of a property’s purchase price that buyers must pay up-front with their own money.
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Earnest money
A sum of money that a buyer gives to the seller when contracting to buy a home.
Equity
The difference between a home’s market value and the amount the owner owes on the mortgage. Equity is the amount of money you’d have if you sold your home today and paid off your mortgage. As the market value of your home increases, so does your equity. Similarly, if your home’s value decreases, your equity does too.
Escrow account
CitiMortgage often sets up an escrow account, called an impound account, for you to prepay certain recurring costs: such as property taxes, hazard insurance and mortgage insurance, if required. You make monthly installment payments to cover these costs and we disburse these sums as they become due.
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Fair market value
The price for a property in a fair and competitive market. The sale price of your home is a true value if it’s freely available on the open market.
Federal Housing Administration (FHA)
A federal agency that insures loans offered by certain lenders. FHA was created by the Department of Housing and Urban Development (HUD) and offers a variety of financing options to help families qualify for a mortgage.
FHA mortgage
A loan with certain restrictions that is guaranteed by the Federal Housing Administration. FHA mortgages may be easier to qualify for since they require a low down payment, usually about 3% of the loan amount, and may offer low interest rates. The catch is you can only borrow up to a certain amount, and you have to pay both an up-front and monthly premium for insurance. The up-front cost, usually 1.5-2% of the loan amount, can be lumped onto the loan and paid off over time. To be eligible you must plan to live in the home that you purchase.
Fixed rate mortgage
A loan with the same interest rate and payment for the life of the loan. When you lock in the interest rate for a fixed rate loan, you’ll have the same rate and monthly payment for the loan’s full term. The main benefit is that you always know what your housing costs are, which takes out the guesswork when planning ahead.
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Gift
A sum of money given to a home buyer as a present. If relatives or a friend give you a helping hand towards your down payment, we will require that you complete and sign a form, called a gift letter, proving that the money doesn’t have to be repaid.. When the funds are transferred into your banking account, you also need to give the lender a receipt of the transaction.
Good Faith Estimate
An estimate of the total costs to get a loan when buying or refinancing a home. After you apply for a loan, CitiMortgage is required by law to send you a Good Faith Estimate within 3 days. The costs may include lender fees, loan-related fees, and third-party fees, such as the title insurance and appraisal. Most of these fees must be paid on the closing date, the day when the sale or purchase of a home is completed.
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Homeowner’s/Hazard insurance
An insurance policy to protect home owners against property damage. We require that you get hazard insurance policy before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or a severe storm. If you live in an area that’s prone to natural disasters, like earthquakes and floods, you might need a separate policy. If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home.
Home equity line of credit
A line of credit, secured by a property, that allows owners to tap into their home’s equity. You may be able to get a line of credit that works like your checking account or credit card. Equity is the difference between the value of your home and the amount you owe on your mortgage. It’s flexible, so, if your equity is $20,000, you can withdraw at will simply by writing a check. Note that you’ll have restrictions on how much you can withdraw at one time. You only pay interest on what you borrow and your credit limit is restored as you pay back what you owe.
Home equity loan
A loan that allows home owners to borrow against the equity in their property. A home equity loan lets you use your equity, the value of your home minus what you owe, as a security that you’ll repay the loan.
Home inspection
A thorough examination of a property by a professional. Before or after you make an offer on a home, it’s a good idea to cover all your bases by requesting a property inspection. Make sure that you hire an experienced professional who has nothing to gain from finding a problem with a property. You might also want to watch the inspection to fully understand the property’s condition and to find out what, if any, repairs need to be made. If the property doesn’t pass the inspection with flying colors, you can either ask the seller to make the needed improvements or you can withdraw your offer — that is, if you included a contingency clause in the purchase agreement.
Home Owners’ Association
A Home Owners’ Association oversees how the common areas of a building or neighborhood are maintained and regulated, including everything from paying hazard insurance to cleaning the pool to collecting the garbage. The association also decides how to spend your monthly Home Owners’ Association dues.
HUD-1
A document that gives a breakdown of the costs that the buyer and seller pay at closing. A HUD-1, also referred to as a closing or settlement statement, gives you the final record of the fees paid at closing.
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Impound account
An account used to pay your hazard insurance, mortgage insurance and property taxes. An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as property taxes, hazard insurance, and mortgage insurance, if required. An impound account is also called an escrow account.
Index
An economic indicator that lenders use to set an adjustable rate mortgage’s (ARM) interest rate. Each ARM is tied to a specific index. Since some indices move up and down faster than others, it’s wise to find out which index is connected to your ARM.
Initial interest rate
The starting interest rate of an adjustable rate mortgage (ARM). The initial interest rate on an ARM is fixed for a certain period then adjusts to reflect overall market rates. Fixed rate loans, on the other hand always have the same interest rate for the life of a loan.
Interest/Interest rate
The cost you pay for borrowing money. The original amount borrowed is called the principal, and the percentage of the principal which must be paid annually as interest is called the interest rate.
Interest rate cap
The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have two types of interest rate caps: (1) lifetime caps, which are required by law, limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor.
Introductory rate
An adjustable rate mortgage’s (ARM) starting interest rate, which stays fixed for a certain time then adjusts to reflect overall market interest rates.
Investment property
Any property that you buy to make a profit, either from renting or selling it, that will not be used as your primary residence.
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Jumbo loan
Any loan that allows you to borrow more than an amount set by Fannie Mae and Freddie Mac.
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Lien
A claim placed on a property to secure a debt. The mortgage on your home is a voluntary lien — you agree to put up your home as security that you’ll repay the loan. Creditors, like the IRS or someone who has won a civil court suit against you, can also have a lien put on your home, but without your permission. All liens must be paid off before you can transfer your property to someone.
Lifetime rate cap
A limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan. For example, if your initial interest rate is 6% and the lifetime rate cap is +5%, your rate can’t go beyond 11% over the loan’s term. The maximum lifetime rate cap is often called the ceiling; similarly, the minimum lifetime rate cap is called the floor.
Loan Amount
The total amount of money borrowed.
Loan-to-value ratio (LTV)
A percentage that shows how much equity a borrower will have in a home. LTV compares how much a person plans to borrow versus the property’s value. For example, a 90% LTV loan that means you want to borrow 90% of the home’s price and will have a 10% down payment (or equity if you’re refinancing). This gives you 10% equity in your property.
Lock period
The amount of time that we will guarantee a loan’s interest rate.
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Margin
A margin refers to an adjustable rates mortgage’s (ARM) interest rate, which is made up of the margin plus the index, a value that represents overall market rates. Unlike the index, the margin on a loan never changes. If you are comparing two loans with the same index, choose the loan with the lower margin.
Maturity
When a loan completes its term. A 30-year loan reaches maturity in 30 years, similarly, a 15-year loan matures in 15 years.
Mortgage
A document that pledges your property as security for a loan’s repayment. If you can’t repay the loan on your home, a mortgage gives the right to foreclose on the property and sell it to get back their money. A deed of trust serves the same purpose as a mortgage, however some states traditionally use one or the other – in some cases both, depending on the custom in each county.
Mortgage insurance (MI)
An insurance contract that protects the lender against loss if a borrower can’t repay a loan. If your down payment (or equity) is less than 20%,we may require you to buy MI. Also known as Private Mortgage Insurance or PMI.
Mortgage Insurance Premium (MIP)
A one-time fee required for insurance on a FHA mortgage. If you apply for a FHA mortgage, you have to pay MIP, which is about 1.5% of the loan amount, on the closing date.
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NOIA
Notice of Incomplete Application Letter that indicates any additional documentation we may need to underwrite your mortgage. This might include pay stubs, W-2s, bank statements or other verification documentation.
Non-conforming loans
Any loan that allows you to borrow over a certain amount set by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Note
A written promise to pay back money at a specific time.
Note Rate
The rate of interest indicated on the mortgage note.
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Payment cap
A limit on how much monthly payments can fluctuate on an adjustable rate mortgage (ARM). The combined benefit is very low minimum payments in the first year, followed by moderate payment increases in subsequent years.
Piggy back loan
A second loan on a home, usually up to 15% of the property’s purchase price. If you can make a 10% down payment on a home, one way to avoid paying for Mortgage Insurance (MI) is to get two loans. Here’s how it works: you get a loan for 80% of a property’s purchase price at a standard interest rate and then get a second, “piggy back” loan at 10% of the purchase price. This type of financing is commonly called 80-10-10. To figure out if getting a second loan makes sense for you, compare your monthly costs with a piggy back loan versus paying Mortgage Insurance
Point
One percent of the total loan amount. Loan rate points can be either positive (discount points) or negative (rebate points). The more positive points you choose to pay up-front, the lower your interest rate may be. For every point you pay, your rate will usually go down by about .25%. On the other hand, you can opt for a loan with a higher interest rate in exchange for a rebate, which will give you a credit towards paying some of your non-recurring closing costs, such as title insurance, appraisal and origination fee. You can’t get any cash back from rebate points.
Power of Attorney
An authority by which one person (principal) enables another (attorney in fact) to act for him/her.
Principal
The amount borrowed on a loan. If you take out a loan for $100,000, the principal on the loan is $100,000.
Principal balance
How much the borrower has left to pay on the loan principal.
Private mortgage insurance (PMI)
An insurance contract that protects the lender against loss if a borrower can’t repay a loan. If your down payment (or equity) is less than 20%, we may require you to buy MI. Also known as Mortgage Insurance or MI.
Property address
Address of the property for which the mortgage is being sought.
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Rate commitment option (RCO)
The time period and the option to float or lock the interest rate of your loan. An example of a RCO is a 60-day lock, in which the interest rate is secured for 60 days.
Rate commitment option expiration date
The date the RCO expires. If the mortgage loan has not settled or closed, this could mean additional charges to extend the option.
Rate lock
Our guarantee on a specific interest rate for your loan. Until you lock in your rate, the rate may fluctuate based on market conditions. A CitiMortgage Lending Consultant can lock in your rate and discuss extending your rate lock if your loan does not close before your rate lock expires.
Real estate taxes
A tax levied by local governments, based on the value of property you own. Property tax on real estate is the main source of financing for local governments and school districts. You may also pay tax on personal property, such as business equipment.
Rebate point
A credit towards your closing costs in exchange for a higher interest on your loan. You can change your loan’s interest rate based on how many points you either pay (called discount points) or receive (rebate points). Each rebate point, which is equal to 1% of the loan amount, will generally increase your interest rate by about .25%, but will fluctuate based on product, term, loan amount, etc. So, if you opt for one rebate point on a $100,000 loan with an 8% market rate, you’d get $1,000 towards your closing costs and your new interest rate would be 8.25%.
Note that you can’t pocket the cash from rebate points. You can only use them towards your non-recurring closing costs, including your appraisal, property inspection, title insurance and lender/broker origination fees. Rebate points don’t cover your prepaid interest, hazard insurance, private mortgage insurance (PMI) and impounds.
Refinance
When a home owner replaces their current mortgage with a new one. Refinancing to a lower rate can shave several hundred dollars off your monthly mortgage payment. You can also refinance and get cash back by tapping into the equity in your home.
Remaining balance
The total amount that a borrower owes on a loan at any given time.
Remaining term
The amount of time until a loan is completely paid off. If you are in your fifth year of paying off a 30-year loan, the remaining term is 25 years.
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Second mortgage
A loan that is second in priority after a first mortgage. You can have one or more mortgages on your property.
Settlement
When a property’s sale or purchase is completed. Depending on where you live, settlement can either be in escrow, or a sit-down meeting between the buyer and seller. The rules for settlement vary from state to state, as well as from county to county, but typically here s what takes place: (1) the buyer pays for the home and closing costs in one lump-sum; (2) the buyer and seller sign the closing documents; (3) the deed is recorded; and (4) the mortgage officially begins. If settlement is a meeting, the buyer and seller are often joined by mortgage brokers, attorneys, a lender representative or title officer. Settlement is also called closing.
Settlement statement
A document that gives a breakdown of the costs that the buyer and seller are responsible for on the closing date. The settlement statement, unlike the Good Faith Estimate, shows the final paid closing costs. The settlement statement is also called HUD-1 or closing statement.
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Title
Ownership of a property. If you have title to a property, that means you have the right to own it. Sometimes title can refer to the documents, such as a deed, which proves you own a property. Title documents are on public record at the county courthouse.
Title insurance
An insurance policy that protects a CitiMortgage and/or home owner against any loss resulting from a title error or dispute.
Title (insurance) company
A company that confirms the legal owner of a property, as well as insures a home owner and CitiMortgage against a loss that could result from a title dispute. Before the closing date of your home’s purchase or sale, a title company will search and collect all the public records of a property’s ownership. The title company checks these records to find out who the legal owner is and to see if there any claims against the property, such as mortgages, liens for unpaid property taxes, judgments and wills — anything that can affect the title (ownership).
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VA loan
A low-cost loan for U.S. veterans that is partially guaranteed by the Department of Veterans Affairs (VA). If you’re a veteran, you can get some VA loans without a down payment. The loan amount cannot be more than the VA’s appraisal. If it is, you have to pay the difference in cash. You still need to pay closing costs, including appraisal and title insurance fees, as well as one-time funding fee for about 2% of the loan amount.
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Welcome Package
Within three business days of contacting us and beginning your application process, we will send a package which includes a Good Faith Estimate of Settlement Charges, a Truth In Lending statement, a Rate Commitment Options form, a Loan Servicing Application Disclosure and a loan application.
