General Mortgage Knowledge Definitions

Question 1

The true cost of financing. The amount financed and the cost to finance is
reflected in the Annual Percentage Rae.

Answer 1

Annual Percentage Rate (APR)

Question 2

which is higher, APR or fully indexed note rate?

Answer 2

Generally, the APR is higher than the

fully indexed note rate.

Question 3

A calculation or formula a lender uses that outlines the required payments,
which includes the monthly principal and interest required to extinguish a debt
over a predetermined period

Answer 3

Amortization (schedule)

Question 4

A unit which equals 1/100 of 1%

Answer 4

Basic Points

Question 5

Items of value owned by an individual

Answer 5

Asset

Question 6

50 basis points equals?

Answer 6

.5%

Question 7

A fee, referred to as a discount fee or discount points paid to a lender to
receive a rate below the lenders base rate or par rate. Also referred to as
permanent buy down

Answer 7

Buy down

Question 8

A percentage limitation on how high or low an adjustable rate may increase or
decrease.

Answer 8

Cap

Question 9

The cost associated with closing a mortgage loan transaction

Answer 9

Closing costs

Question 10

A non-cash accounting expense reducing the value of an asset.

Answer 10

Depreciation

Question 11

The difference between the market value of a property and the total
outstanding obligations

Answer 11

Combined Loan to Value (CLTV)

Question 12

An index used in adjustable rate mortgages

Answer 12

Cost of funds index (COFI)

Question 13

Failing to meet the monthly interest expense and deferring the outstanding
amount to a future date. Deferred interest has the impact of increasing the
principal balance and is also referred to as negative amortization

Answer 13

Deferred interest

Question 14

The Fannie Mae electronic underwriting vehicle

Answer 14

Desktop Underwriter (DU)

Question 15

A fee which is a percentage of the loan amount that is used to buy down the
mortgage interest rate

Answer 15

Discount and Discount

Points

Question 16

A deposit used in a real estate purchase agreement. The amount is generally
held by the real estate broker, reflected as a cash asset on the loan application
and credited at the closing

Answer 16

Earnest Money Deposit

Question 17

The difference between the market value of a property and the amount of
outstanding debt against the property

Answer 17

Equity

Question 18

A third party agent that receives, holds, and/or disburses certain funds or
documents upon the performance of certain conditions. For example, an earnest
money deposit is put into escrow until the transaction is closed. Only then can
the seller receive the deposit.

Answer 18

Escrow

Question 19

A trust account that is established to hold funds allocated for the payment of
real estate taxes, hazard or insurance premiums, etc., as they are received each
month and until such time as they are disbursed to pay the related bills.

Answer 19

Escrow Account

Question 20

A mortgage that has priority over all other liens

Answer 20

First Mortgage

Question 21

A mortgage where the interest rate remains the same for the life of the loan

Answer 21

Fixed rate mortgage

Question 22

A method by the lender to accelerate the due date of the loan balance based on
a borrowers default on the loan. If the borrower is unable to meet the new
requirements the lender can remove the borrowers interest in the property
either through a judicial or non-judicial process based on state law

Answer 22

Foreclosure

Question 23

An interest rate based on the index and the margin

Answer 23

Fully Indexed Rate

Question 24

Monthly income before deductions

Answer 24

Gross Monthly Income

Question 25

A market instrument that varies with market conditions. Rates tied to an index can adjust based on the changes in the index

Answer 25

Index (plural is indices)

Question 26

One of many indices used in the residential mortgage industry for adjustable rate mortgages

Answer 26

11th District COFI

Question 27

The cost of borrowing money

Answer 27

Interest

Question 28

Where principal and interest payments are due just the interest is paid. The principal remains the same when an interest only payment is made

Answer 28

Interest Only

Question 29

The rate applied to the cost of borrowing money. The higher the risk then higher the rate

Answer 29

Interest Rate

Question 30

The loan amount as a percentage of the purchase price or appraised value whichever is lower. LTV is always based on the first or senior mortgage position

Answer 30

Loan to Value (LTV)

Question 31

One of many indices used in the residential mortgage industry for adjustable rate mortgages

Answer 31

London Interbank Offer | Rate (LIBOR)

Question 32

The highest the rate can increase above the initial fully indexed rate based on the margin and index

Answer 32

Life of Loan Cap

Question 33

A refinance transaction where the borrower can receive cash back of $2,000 or 2% of the loan amount whichever is less

Answer 33

Limited Cash-out Refinance

Question 34

The lenders profit which is added to the index to determine the rate which is referred to as the par rate or the fully indexed rate

Answer 34

Margin

Question 35

An instrument that allows a voluntary lien on real property once recorded

Answer 35

Mortgage

Question 36

An individual interest in a group of mortgages on the secondary market. Principal and interest payments are grouped and paid to the individual investors

Answer 36

Mortgage Backed Security (MBS)

Question 37

A form of insurance that protects the lender in the event of a borrowers default

Answer 37

Mortgage Insurance

Question 38

When the full interest expense of a payment is not met, the interest is deferred effectively increasing the amount owed. This is considered negative amortization

Answer 38

Negative Amortization

Question 39

The difference between the assets owned and any liabilities owed. Positive net worth means that the assets are worth more than the outstanding liabilities

Answer 39

Net worth

Question 40

Taking and signing an application, negotiating terms and rates and the collecting of documentation for a mortgage loan

Answer 40

Origination

Question 41

The fee earned for originating a loan

Answer 41

Origination fee