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|Glossary of Common Mortgage Terms|
The lender may promise one type of loan or interest rate but, without good reason, gives you a different one. Sometimes a higher (and unaffordable) interest rate doesn't kick in until months after you have begun to pay on your loan.
|Balloon mortgage||A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.|
The lender encourages you to borrow heavily from the equity in your home (the amount you own free and clear of your mortgage) as an easy way to get additional money, consolidate debt or fund home repairs, knowing that the fees and payments are so high you may not be able to make them. You dramatically reduce your equity and, in the worst case, the lender forecloses on the loan, takes possession of your home, and strips you of the equity.
|Good Faith Estimate (GFE)||
A document which tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant within three business days after the application is received.
|Home improvement scams||
A contractor talks you into costly or unnecessary repairs, steers you to a high-cost mortgage lender to finance the job, and arranges for the loan proceeds to be sent directly to the contractor. All too often, the contractor performs shoddy or incomplete work, and the homeowner is stuck paying off a long-term loan where the house is at risk.
|HUD-1 Uniform Settlement Statement||Standard form used to disclose costs at closing. All charges imposed in the transaction, including mortgage broker fees, must be disclosed separately.|
Percentage paid for the use of money, usually expressed as an annual percentage.
The lender encourages you to get additional cash by refinancing your mortgage again and again. This tactic significantly increases your debt because fees (often exorbitant) are tacked on to each loan transaction, and you may pay a higher interest rate than with your original loan. You become saddled with higher payments, higher debt, and the risk of losing your home.
The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document which specifies the terms of the lock-in is called a rate commitment or lock-in agreement.
|Mortgage life insurance||Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.|
An amount equal to one percent of the principal amount of a mortgage. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.
|Prepayment penalty/prepayment premium||
A charge the mortgagor pays the mortgagee for the privilege to prepay the loan.
|Right of rescission||
Period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction.
“Prime” and “Subprime” refers to the interest rate and terms of the loan based on the borrower’s credit history. Borrowers with the highest credit scores and cleanest payment histories present limited risk to the lender and are usually offered lower interest rates and placed in the “prime” market.
Borrowers with lower credit scores as a result of events such as late payments, court judgments and bankruptcies present a higher risk to the lender; and, therefore, are offered higher interest rates and are placed in the “subprime” market. More information...
|Truth-in-Lending Act (TILA)||
Federal law which requires a truth in lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR, as well as other facets of the mortgage program. The law also requires the right of recission period which follows the closings of refinances.
|OPRA is a state law that was enacted to give the public greater access to government records maintained by public agencies in New Jersey.||You will need to download the latest version of Adobe Acrobat Reader in order to correctly view and print PDF (Portable Document Format) files from this web site.|
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State of New Jersey
New Jersey Department of Banking and Insurance