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McLaughlin Capital Group Glossary

Adjustable-Rate Rortgage (ARM): A mortgage where the interest rate changes over time, based on an index.

Amortization: The gradual repayment of a mortgage by installments.

Annual Percentage Rate (APR): The total yearly cost of a mortgage stated as a percentage of the loan amount - includes the base interest rate, mortgage insurance, and loan origination fee (points).

Appraisal: A professional opinion of the market value of a property.

Appreciation: An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value: The valuation placed upon property by a public tax assessor for purposes of taxation.

Cap: A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Reserve: A requirement by some lenders that buyers have sufficient cash remaining after closing to make subsequent mortgage payments.

Closing: The occasion where a Sale is finalized, the buyer signs the mortgage documents, and closing costs are paid. Also called "settlement."

Credit Report: A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

Credit Scores: Credit Scores are a grading system used by the credit repository companies that lenders use to determine credit risk.

Deed: The legal document conveying title to a property.

Deed of Trust: The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.

Default: Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Down Payment: The part of the purchase price the buyer pays in cash and does not finance with a mortgage.

Earnest Money Deposit: A deposit paid to the seller and placed in an escrow account at the time when a formal sales contract is signed. This deposit shows that a prospective buyer is serious about buying the house.

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from denying mortgages on the basis of the borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity: The difference between the market value of a property and the homeowner’s outstanding mortgage balance.

Equity Loan: A loan based on the borrower’s equity in his or her home.

Escrow: The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Fair Credit Reporting Act: A consumer protection law that sets up a procedure for correcting mistakes on one’s credit record.

FHA Loan: A mortgage that is insured by the Federal Housing Administration.

First Mortgage: The mortgage that has first claim in the event of default.

Fixed rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

Flood Insurance: Insurance required for properties in federally designated flood areas.

Foreclosure: The process by which a mortgaged property may be sold when a mortgage is in default.

Hazard Insurance: Insurance to protect the homeowner and the lender against physical damage to a property from fire, windstorm, vandalism, or other hazards.

Homeowner’s Insurance: An insurance policy that combines liability coverage and hazard insurance.

Index: Index is the published rate used in determining the impact of adjustment on an existing adjustable rate mortgage.

Interest Rate Cap: A provision of an ARM limiting how much interest rates may increase per adjustment period.

Lien: A legal claim against a property that must be paid when the property is sold.

Lifetime Cap: A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Loan-to-Value Ratio (LTV): The relationship between the amount of a mortgage and the total value of the property.

Lock: A written agreement guaranteeing the home buyer a specified interest rate with specified points, provided the loan is closed within a set period of time. The lock also usually specifies the number of points to be paid at closing.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker: A company that originates mortgages exclusively for resale in the secondary market.

Mortgage Broker: A company that, for a fee, matches borrowers with lenders.

Mortgage Insurance: Insurance required by non-government insurers on loans where the borrower puts less than 20% down. This insurance protects lenders against loss if a borrower defaults.

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Origination Fee: A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

PITI: Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

Points: A one-time charge by the lender to the borrower for obtaining a certain interest rate; one point equals 1% of the amount of the mortgage.

Prepayment Penalty: A fee charged to a borrower who pays off a loan before it is due.

Pre-Qualification: The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Purchase and Sale Agreement: A written contract, signed by the buyer and seller, stating the terms and conditions under which a property will be sold.

Qualifying Ratios: Guidelines applied by lenders to determine how large a loan to grant a home buyer.

Real Estate Agent: A person licensed to negotiate and transact the sale of real estate.

Real Estate Settlement Procedures Act (RESPA): A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Secondary Market: The secondary market is where lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for mortgage lending.

Title: A legal document establishing the right of ownership.

Title Company: A company that specializes in insuring title to property.

Title Insurance: Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

Title Search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Truth-in-Lending: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

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