Home Loan Toolkit

Question 1

Total monthly home payment

Answer 1

More than just your mortgage; it includes principal and interest (P&I), mortgage insurance, property taxes, homeowner’s insurance, homeowner’s association or condominium fees, if they apply.

Question 2

Principal

Answer 2

The amount you pay each month to reduce the loan balance.

Question 3

Interest

Answer 3

The amount you pay each month to borrow money.

Question 4

Fixed-rate mortgage

Answer 4

The principal and interest stays the same for as long as you have your loan.

Question 5

Adjustable-rate mortgage (ARM)

Answer 5

A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as “Adjustable Mortgage Loans (AMLs)” or “ Variable-Rate Mortgages
(VRMs).”

Question 6

Balloon payment

Answer 6

The final lump sum payment due at the end of a balloon mortgage.

Question 7

Prepayment penalty

Answer 7

A fee charged to borrowers for paying off a loan before it is due. Prepayment penalties are provisions
that are not included in all loans.

Question 8

Private mortgage insurance (PMI)

Answer 8

The insurance purchased by a conventional loan borrower to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Private mortgage insurance is generally maintained until over twenty percent of the outstanding amount of the loan is paid or for a set period of time.

PMI lets the borrower make a lower down payment by insuring the lender against loss if they fail to pay the mortgage.

Question 9

Prepayment

Answer 9

Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property,
the pay off of the loan in full, or a foreclosure.

Question 10

Points

Answer 10

Fees that borrowers can pay to a lender to lower the interest rate on a mortgage loan. Also known as “discount points,” points each cost 1% of the amount of the loan and are added to the closing costs. The use of discount points to lower the rate of interest for the full term of a loan is known as “permanent buy-down.”

Question 11

Zero points loan

Answer 11

A loan priced at market rate without points in either direction, up or down.

Question 12

Lender credit

Answer 12

Paid points at closing to receive a lower interest rate.

Question 13

Loan estimate

Answer 13

A disclosure that helps applicants of forward closed-end mortgages comprehend the expense, risk, and characteristics of the specific loan for which they are applying.

A standard form showing important facts about the loan.

Question 14

Total loan cost

Answer 14

Includes what your lender charges to make the loan, as well as costs for services such as appraisal and title.

Question 15

Annual Percentage Rate (APR)

Answer 15

A measure of your costs of credit, including interest and other charges over the loan term expressed as a yearly rate.

Question 16

Total Interest Percentage (TIP)

Answer 16

The total amount of interest that you pay over the loan term as a percentage of the loan amount.

Question 17

Intent to proceed

Answer 17

The buyer expresses the desire to proceed with the mortgage application. Lenders have to wait until the buyer expresses intent to proceed before requiring them to pay an application fee, appraisal fee, or most other fees.

Question 18

Rate lock

Answer 18

Sets your interest rate for a period of time; are typically available for 30, 45, or 60 days, and sometimes longer.

Question 19

Closing agent

Answer 19

A third-party that performs loan closings on behalf of a lender. The title company typically acts as the closing agent, however, in some states, an attorney is required to act as the closing agent.

Question 20

Title insurance

Answer 20

Insurance that protects the lender or homebuyer against any claims that arise from arguments about ownership of the property. It is also an insurance title search protection against errors.

Question 21

Lender’s Title Insurance

Answer 21

An insurance policy that protects the lender by insuring the amount of the loan only.

Question 22

Owner’s Title Insurance

Answer 22

Voluntary homeowner’s insurance that protects against potential liabilities and covers the full purchase amount.

Question 23

Home inspector

Answer 23

An examination of the structure and mechanical systems to determine a home’s quality, soundness and safety. The homebuyer generally pays inspection fees.

Question 24

Home appraiser

Answer 24

A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate, the home’s market value.

Question 25

Closing Disclosure

Answer 25

Gives a consumer an explanation of all the costs associated with their loan. It must be delivered 3 business days before consummation for all forward closed-end mortgages.

Question 26

Origination Costs

Answer 26

The cost for the lender to make or originate the loan.

Question 27

Underwriting

Answer 27

The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower’s credit history and a judgement of the property value.

Question 28

Mortgage Servicer

Answer 28

The company that is tasked with collecting mortgage payments. They are in charge of collecting payments, managing escrow accounts, including paying out the taxes and insurance when they come due and evaluating the account for escrow analysis. They also deal with delinquencies, defaults, and a foreclosure if necessary.

Question 29

Home Equity Line of Credit (HELOC)

Answer 29

An open-end mortgage loan, which is usually a second mortgage that allows a borrower to obtain cash against the equity of a home up to a predetermined amount.

Question 30

Right to rescind

Answer 30

The Truth in Lending Act (TILA) gives homeowner’s that take out a HELOC the right to change their mind and cancel the loan within three days of receiving a proper notice of the right to rescind from the lender. The buyer cannot rescind if using HELOC to buy a home.

Question 31

Consumer Financial Protection Bureau (CFPB)

Answer 31

A federal agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.