| 11th District Cost of Funds Index
(COFI) |
An index used to establish
the interest rate for an adjustable rate mortgage,
in this case based on the average costs of deposits
and borrowings for savings institutions in the
Federal Home Loan Bank's 11th District. |
| 12-month Treasury Average (MTA) |
An index used to establish the interest rate
for an adjustable rate mortgage, in this case
based on the average monthly yields on US Treasury
Securities adjusted to a constant maturity of
one year. Loans based on this index rise and
fall gradually. |
| 1-year Treasury (CMT) |
An index used to establish the interest rate
for an adjustable rate mortgage, in this case
based on the monthly average yield on US Treasury
securities adjusted to a constant maturity of
one year. |
| 6-month Spot CD |
An index used to establish the interest rate
for an adjustable rate mortgage, in this case
based on a weekly average of the secondary market
interest rates on six-month negotiable Certificates
of Deposit offered by commercial banks. |
| Adjustable Period |
The length of time between changes to the
interest rate on an adjustable rate mortgage.
An ARM can change its rate every one month,
six months or 12 months, depending on the loan. |
| Adjustable Rate Mortgage (ARM) |
A mortgage with an interest rate that changes
over time in line with movements in the index
to which it is linked. |
| Amortization |
Repayment of a loan with one portion going
to defray the accruing interest and the other
portion to the loan principal amount at a rate
that the loan is paid off at the end of the
loan term. |
| Annual Percentage Rate (APR) |
The total finance charge for a loan, including
interest loan fees and points, expressed as
a percentage of the loan amount. |
| Assumable Mortgage |
A mortgage that can be assumed by a buyer
when a home is sold. The buyer must usually
qualify to assume the loan. |
| Cap |
In an adjustable rate loan, the limit to how
much an interest rate or monthly payment can
change at each adjustment or over the life of
the loan. |
| Closing Statement |
A financial disclosure statement that details
all of the funds received and paid at the closing
of escrow, including real estate commissions,
loan fees, and fees for taxes and insurance. |
| Cost of Deposit Index (CODI) |
An
index used to establish the interest rate for
an adjustable rate mortgage, in this case based
on a 12-month rolling average of the monthly
yields on the nationally published three-month
Certificate of Deposit rates. |
| Cost of Funds Index (COFI) |
An index used when establishing the interest
rate for an adjustable rate mortgage (ARM),
based on the weighted-average interest rate
paid by the 11th Federal Home Loan Bank District
savings institutions for savings and checking
accounts. |
| Covenants, Conditions & Restrictions
(CC&R's ) |
A document that controls the use, requirements
and restrictions of a property. |
| Due on sale clause |
A provision in a mortgage that allows the
lender to demand full repayment of the mortgage
if the borrower sells the property that secures
the mortgage. |
| Earnest money |
A portion of the down payment delivered to
the seller or escrow agent by the purchaser
with a written purchase offer as evidence of
good faith. |
| Federal National Mortgage Association |
A privately owned corporation created by Congress
to support the secondary mortgage market. It
purchases and sells residential mortgages insured
by FHA or guaranteed by VA, as well as conventional
home mortgages. Commonly known as Fannie Mae. |
| Finance charge |
The total cost a borrower must pay, directly
or indirectly, to obtain credit. |
| Graduated payment mortgage |
A residential mortgage with monthly payments
that start at a low level and increase at a
predetermined rate. |
| Index |
An independent, published economic indicator
used by lenders to establish the interest rates
for adjustable rate mortgages (ARM). ARM rates
follow the movement of the index with which
they are linked. |
| Interest Rate |
The
rate of interest charged by a lender over an
established time period. |
| LIBOR (London Interbank Offered
Rate) |
An index used to establish the interest rate
for an adjustable rate mortgage, in this case
based on the rate at which deposits of US dollars
are traded in London. |
| Lien |
A legal claim or hold on a property that must
be paid off when the property is sold. |
| Loan commitment |
A written promise to make a loan for a specified
amount with specific terms. |
| Loan-to-value ratio |
The relationship between the amount of the
mortgage loan and the value of the property,
expressed as a percentage. For example, a loan
of $95,000 for a home worth $100,000 would have
a loan-to-value ratio of 95%. |
| Margin |
Percentage points added by lenders to the
index to establish the actual ARM interest rate
(index plus margin equals interest rate). |
| Negative amortization |
Occurs
when a borrower's monthly payment is too small
to cover both the principal and interest of
a loan, so the outstanding balance of the loan
grows larger with each payment. Some adjustable
rate mortgages allow this option. |
| Origination fee |
A fee for establishing a new loan. |
| PITI |
An acronym used to describe the components
of a house payment: Principal, Interest, Taxes
and Insurance. |
| Point |
An amount equal to 1% of the principal amount
of the mortgage. Points paid by the borrower
at the time a loan closes reduce the interest
rate. |
| Prepayment penalty |
A fee charged by the lender if the borrower
pays off a loan before it is due. |
| Prime Rate |
The
interest rate that commercial banks charge their
most creditworthy borrowers. |
| Private mortgage insurance |
Insurance written by a private company to
protect the lender against loss if the borrower
defaults on the mortgage. |
| Title insurance |
An insurance policy that protects the purchaser,
mortgagee or other party against liens or encumbrances
against their property. |
