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Common Mortgage-Related Terms Explained - Part 3

Note - A document specifying that a borrower is to repay a loan at a specific interest rate over a specific period of time.

One Year Adjustable Rate Mortgage / One Year ARM - Loan in which the interest rate changes on a yearly basis.

Origination Fee - Fee charged by a lender for the work involved in preparing a loan.

Owner Financing - Property sale in which the seller provides at least some part of the buyer's financing.

Payment Change Date - Date when a new payment amount begins on an ARM or GPM.

PITI - Principal, Interest, Taxes, and Insurance

Points / Loan Discount Points - Interest money paid at closings for the purpose lowering the cost of monthly loan payments. One Point is equal to one percent of the loan's total amount.

Power Of Attorney - The legal authorization of one person being able to act in behalf of another.

Preapproval - The process of evaluation a potential buyer goes through to decide how much money a loan can be given to them for.

Prepayment - Mortgage stipulation permitting the borrower to make additional payments before the maturation date.

Prepayment Penalty - Fee charged by a lender to a borrower when the borrower repays the a loan earlier than an agreed upon date.

Principal - On a loan, the total amount that remains unpaid by the borrower. On a monthly payment, the amount that goes towards the final paying of the loan.

PMI / Private Mortgage Insurance - Insurance that a buyer must pay for; required when a borrower does not provide a 20% down payment on purchase of a new property.

Rate Lock - Commitment given by a lending institution to a buyer that guarantees a certain interest rate is valid for closing for a specified period of time.

Real Estate Agent - A person that is licensed to negotiate the sale of property.

Recission - The cancellation of an agreement or contract; the law giving a homeowner 3 business days to cancel a loan arrangement. "Right of Recission"
Refinancing - The obtainment of a new replacement mortgage on a property that is already mortgaged.

Satisfaction of Mortgage - Document issued to a borrower on the occasion of their repayment of said loan.

Second Mortgage - The acquirement of an additional, subordinate mortgage on a property that is already mortgaged.

Servicing - All the work involved to keep a mortgage in good standing such as paying various tax, insurance, and other costs.

Shared Appreciation mortgage - A mortgage in which the buyer receives a property for less than current market value; in exchange, the seller is granted a portion of future property appreciation values.

Simple Interest - Interest calculated only on the balance owed.

Step Rate Mortgage - A loan in which the interest rate increases based on a set schedule until a set point, after which the rate remains constant.

Title - The document declaring a property's ownership.

Title Insurance - Insurance policy that insures a potential home buyer or lender against errors in a title search.

Title Search - A legal examination of records to determine who is the rightful owner of a property.

Truth in Lending - Federal law that requires the lenders to disclose the APR to a buyer after applying for a loan.

Underwriting - The decision made by a lender on whether or not to provide a loan to a borrower based on their qualifications.
 
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