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Wisconsin and Illinois Mortgage Glossary

adjustable rate mortgage (ARM)
Loan with an interest rate that changes periodically in accordance with a specified index.
cap (interest rate)
Provision that limits how much an interest rate may increase or decrease at each adjustment period or over the life of the loan.

fully indexed rate
Index rate plus the lender's margin, which are used to establish the interest rate on a loan.

index
Published economic indicator which lenders use to establish interest rates.

initial interest rate
Introductory interest rate on an ARM. Often offered for 1, 2, 3, or 5 years.

interest rate cap or ceiling
Maximum interest rate allowed on an ARM. Sometimes called a Lifetime Cap.

margin
Amount a lender adds to an index to establish an interest rate.

payment cap
Maximum monthly payment required on an ARM.

amortization
Repayment of your loan amount through regular payments of both principal and interest, calculated to pay off the loan after a fixed period of time.

annual percentage rate (APR)
Charges imposed on the borrower to obtain a mortgage, expressed on an annualized basis as an interest rate. It includes the interest rate, loan fees and points.

appraisal
Professional estimate of your property's current market value.

appreciation
Increase in property value (opposite: depreciation).

assessed value
Property's taxable value according to your local tax assessor

balloon mortgage
Loan with monthly payments of principal and interest that do not fully amortize the loan. The last payment is then made up of a lump-sum of the remaining principal balance.

clear title
Home ownership title without liens or claims against it.

closing
The time at which loan documents and funds are signed and delivered to finalize the funding of a loan. Sometimes called a settlement.

closing costs
Expenses incurred to finance a home loan and/or transfer ownership of real estate.

combination rate mortgage
Loan that has a fixed rate for the first 2 or 3 years, then has an adjustable rate for the remaining years.

combined loan-to-value (CLTV) ratio
Comparison, in the form of a ratio, of the total outstanding loans against the real property to its appraised value or sales price.

common areas
Areas in a condominium or townhouse development used by all residents and supported with owners' association fees.

consideration
Something of value (usually money) exchanged for the act or promise of another person; a required element in a legally enforceable contract, such as a home sales contract.

co-signer
Person who agrees to make loan payments, if you cannot fulfill your financial commitment.

credit rating
A rating given to a person that establishes creditworthiness based on credit history, experience and current financial condition.

credit report
A report run by an independent credit agency which verifies certain information concerning your credit standing.

counter offer
Rejection of an offer to buy, that includes a new offer to consider.

debt-to-income ratio
Ratio of your monthly debt obligation to gross monthly income.

down payment
Cash paid by the home buyer towards the partial payment of a home's sales price.

escrow
The collection or deposit of documents and funds from the parties involved while a purchase loan is being processed that are held by a third party until all conditions are met to fund the loan.

Fannie Mae
Federal National Mortgage Association. A government-sponsored private corporation that buys home loans from lenders and sells them to investors.

FHA
Federal Housing Administration. An agency within the Department of Housing and Urban Development that provides mortgage insurance for home loans and sets standards for construction and underwriting.

fixed rate mortgage
Loan with an interest rate and monthly payments that remain constant throughout the life of the loan.

gift funds
Funds used for a down payment or closing costs that were a gift from a relative.

hazard insurance
Insurance coverage that compensates the insured for physical damage to the mortgaged property.

home improvement loan
A loan used to pay for permanent improvements to a home.

homeowners insurance
Hazard insurance plus provisions to protect against personal liability and damage or loss to the personal property inside the home.

housing expense
Any and all housing costs, i.e., rent or mortgage payment, including principal, interest, taxes, and hazard insurance.

impound or escrow account
Account consisting of a portion of monthly payments collected and distributed by a lender to pay for taxes, insurance and other expenses.

joint tenancy
Ownership of property by two or more persons with equal interest and equal rights in the property including the right of survivorship. If one owner dies, ownership rights are passed to the surviving owner.

loan-to-value (LTV) ratio
Ratio of the loan against the real property to its appraised value or sales price.

negative amortization
Increase in the unpaid loan balance created when monthly payments do not cover both principal and interest and unpaid interest is added to the principal balance.

owner-occupant
Borrower living in the mortgaged property as his or her primary residence.

PMI (Private Mortgage Insurance)
Insurance coverage purchased to protect lender from non-payment of the loan.

points
Upfront fee lenders charge to reduce an interest rate. Each point typically equals 1 percentage point of the total amount of the loan.

prepayment penalty
Fee borrowers pay if they pay off a loan during the early years of its term.

principal
The original amount of money borrowed not including interest owed.

purchase loan
A loan used to buy real property.

purchase price
Amount for which a property sells.

Realtor®
Real estate professional adhering to the code of ethics of and participating as an active member in the National Association of Realtors.

refinance loan
New loan obtained on a property that pays off its existing mortgage. May also be used to receive cash for the equity in your home.

  cash-out
Converting all or a portion of the equity in your home to cash when refinancing.

equity
Difference between your home's current value and how much you owe on your home loan.

tenant-in-common
Ownership of property by two or more persons without rights of survivorship. If one owner dies, the ownership does not automatically pass to the surviving owner.

title insurance
Policy which protects against property ownership disputes. Lender title policy is required. You must purchase a separate policy to protect yourself as a homeowner.
 

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