Mortgage Terms K - P:

  • late charge

    The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

  • lease

    A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

  • leasehold estate

    A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

  • legal description

    A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

  • liabilities

    A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

  • liability insurance

    Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

  • lien

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

  • lifetime payment cap

    For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

  • lifetime rate cap

    For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.

  • line of credit

    An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

  • liquid asset

    A cash asset or an asset that is easily converted into cash.

  • loan

    A sum of borrowed money (principal) that is generally repaid with interest.

  • loan origination

    The process by which a mortgage lender brings into existence a mortgage secured by real property.

  • loan servicing

    All the steps taken to maintain a secure position of the lender from the time loan is originated until the last payment is made. The process includes recording payments, analyzing escrow, preparing statements and handling collections.

  • loan-to-value (LTV) percentage

    The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

  • lock-in

    A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

  • lock-in period

    The time period during which the lender has guaranteed an interest rate to a borrower.

  • margin

    For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

  • maturity

    The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

  • maximum financing

    A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

  • merged credit report

    A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

  • modification

    The act of changing any of the terms of the mortgage.

  • money market account

    A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

  • money market fund

    A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

  • monthly fixed installment

    That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

  • monthly payment mortgage

    A mortgage that requires payments to reduce the debt once a month.

  • 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 mortgage market.

  • mortgage broker

    An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

  • mortgage insurance

    A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan.

  • mortgage insurance premium (MIP)

    The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

  • mortgage life insurance

    A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

  • mortgagee

    The lender in a mortgage agreement.

  • mortgagor

    The borrower in a mortgage agreement.

  • multidwelling units

    Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

  • multifamily mortgage

    A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

  • multiple listing service

    A marketing organization composed of real estate brokers who agree to share their listing agreements.

  • negative amortization

    A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create negative amortization.

  • net cash flow

    The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

  • net worth

    The value of all of a person's assets, including cash, minus all liabilities.

  • no cash-out refinance

    A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

  • nonliquid asset

    An asset that cannot easily be converted into cash.

  • notary public

    A public officer auhorized to attest the signing of documents requiring certification.

  • note

    A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

  • note rate

    The interest rate stated on a mortgage note.

  • notice of default

    A formal written notice to a borrower that a default has occurred and that legal action may be taken.

  • original principal balance

    The total amount of principal owed on a mortgage before any payments are made.

  • origination fee

    A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. Usually computed as a percentage of the mortgage. For example, a mortgage of $100,000 with a 1 point origination fee is equal to $1,000 (1 percent of the mortgage amount).

  • owner financing

    A property purchase transaction in which the property seller provides all or part of the financing.

  • partial payment

    A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

  • payment change date

    The date when a new monthly payment amount takes effect on an adjustable-rate mortgage.

  • payoff

    The complete repayment of loan principal, interest and other amounts due..

  • periodic payment cap

    For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

  • periodic rate cap

    For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

  • personal property

    Any property that is not real property.

  • PITI

    A mortgage payment including principal, interest, taxes and insurance.

  • planned unit development

    See PUD.

  • Planned Unit Development (PUD)

    A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

  • point

    A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

  • power of attorney

    A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

  • pre-qualification

    The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

  • prepayment penalty

    A fee that may be charged to a borrower who pays off a loan before it is due.

  • prime rate

    The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

  • principal

    The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

  • principal balance

    The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

  • principal, interest, taxes, and insurance (PITI)

    The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

  • private mortgage insurance (PMI)

    Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

  • promissory note

    A written promise to repay a specified amount over a specified period of time.

  • 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.

  • purchase money transaction

    The acquisition of property through the payment of money or its equivalent.


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