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Mortgage Definitions: Jumbo Mortgages - A home loan that exceeds the $417,000 Fannie Mae and Freddie Mac limit. Annual Percentage Rate (APR) - A yearly rate of interest that includes fees and other costs paid to acquire the loan Lock - A lender's written guarantee that the mortgage rate quoted will be good for a specific period of time. This should be long enough to cover your closing date. 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs - Common adjustable-rate mortgages. With an adjustable rate morgage the interest rate is set for an initial period and may change at specified time intervals. For instance, the 3/1 ARM has a set rate of interest for the first three years and then adjusts annually based on the financial index specified in the contract. 7/23 and 5/25 Mortgages - Common adjustable mortgages with a one-time rate adjustment at the end of the initial period. The 7/23 loan has the same rate for the first 7 years and then adjusts to the rate that will be in effect for the remaining 23 years. Balloon - A mortgage that has a level of monthly payments that will fully amortize it over a stated term (e.g. 30 years) but which provides for a lump-sum payment to be due at the end of an earlier specified term (e.g. 10 years). Buydown - Mortgage in which the rate is lowered by paying more points up front. Caps - The maximum amount that the rate can increase during a specified time period. With 2/6 caps, the mortgage can increase by 2% at each adjustment interval up to a maximum cumulative increase of 6% over the entire life of the loan. Loan-to-Value Ratio (LTV) - Percent of a home's price that is paid for by a mortgage. Negative Amortization - A gradual increase in mortgage debt that occurs when the monthly payment does not cover 100% of the principal and interest due. COFI - Adjustable-rate mortgage with the rate that adjusts based on a cost-of-funds index, of the 11th District Cost of Funds. |
Peter Barkin and Mark Gilman |
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