Glossary of terms

Terms used during the loan process can be unfamiliar or even intimidating sometimes. That's why we've Inc.luded this "loan dictionary" to help make sure our customers understand what's happening while we're working to get them the money they need.

Adjustable Rate Mortgage (ARM): A loan in which the interest rate is periodically adjusted according to movements in a preselected index, such as Treasury Bill rates.

Annual Percentage Rate (APR): a term used to represent the percentage relationship of the total finance charge to the amount of the loan note interest rate. This reflects the cost of credit expressed as a yearly rate, taking into account total finance charges.

Appraisal: a report made by a qualified appraiser to estimate the value of property.

Closing: the delivery of a deed, the signing of notes, mortgages and other loan documents, and the disbursement of the money borrowed.

Compound interest: interest computed on both the principal and accrued interest.

Debt-to-Inc.ome ratio: a borrower's monthly outgoing debts compared to their taxable Inc.ome.

Delinquency: failure to make timely payments of principal and interest in accordance with the terms of a loan.

Equity: the difference between current fair market value of a piece of property, and the amount of debt the owner still owes on the property.

First mortgage: a mortgage that creates a lien against real property having senior priority.

Fixed-rate mortgage: a mortgage on which the interest rate is set for the term of the loan.

Foreclosure: a legal procedure in which property mortgage as security for a loan is sold to pay the defaulting borrower's debt.

Lien: a legal claim of one person on the property of another as security for a debt.

Loan-to-value-ratio (LTV): the relationship of the principal amount of a mortgage to the appraised value of a property. This ratio is expressed to a potential borrower in terms of the percentage of value a lending institution is willing to finance.

Mortgage: a debt instrument executed by an owner of property, pledging that property as security for payment of the debt.

No Inc.ome verification (NIV): an applicant (usually self-employed) who cannot conventionally verify his or her Inc.ome.

Point: an amount equal to 1 percent of the principal amount of an investment or note. Loan discount points are a one-time charge assessed at closing by the lender.

Prime rate: the interest rate that banks charge to their most preferred commercial customers. It tends to be the yardstick for general trends in interest rates.

principal: the amount of debt, exclusive of accrued interest, remaining on a loan.

Refinancing: the repayment of a debt from the proceeds of a new loan, using the same property as security.

Second mortgage: a mortgage that has rights secondary to the first mortgage.

Title search: a title company or real estate attorney searches the courthouse records for all mortgage loans or liens on a given property.

Underwriting: the analysis of a real estate loan for the purpose of determining the amount of risk involved in making the loan. It involves review of the borrower's credit, Inc.ome, ability to repay debt, value of the security property, and certain legal documents.