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Real Estate - Ch. 12
Real Estate Financing
Term | Definition |
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acceleration clause | The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation. |
adjustable-rate mortgage (ARM) | A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index. |
alienation clause | The clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. |
amortized loan | A loan in which the principal as well as the interest, is payable in monthly or other periodic installments over the term of the loan. |
assumption of mortgage | Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments. |
balloon payment | A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized. |
beneficiary | (1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction. |
Comprehensive Loss Underwriting Exchange (CLUE) | A database of consumer claims history that allows insurance companies to access prior claims information in the underwriting and rating process. |
debt to income (DTI) | Information about an applicant’s gross income and total debt that lenders generally look at as a percentage to determine qualification for a loan. |
deed in lieu of foreclosure | A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. If accepted by the mortgagee, this is a way for the mortgagor to avoid foreclosure. |
deed of reconveyance | A document that a trustee uses to transfer the title back to the trustor (borrower) when the note is repaid. |
deed of trust | An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender) - also called a trust deed. |
defeasance clause | A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan. |
deficiency judgment | A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. |
discount point | A unit of measurement used for various loan charges; one point equals 1% of the amount of the loan. |
equity | The interest or value that an owner has in property over and above any indebtedness. |
FICO ® score | a credit score created from software developed by Fair Isaac and Company. Scores can range from a low of 300 to a high of 850, the best score. |
foreclosure | A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. |
growing-equity mortgage | A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan. |
homeowners insurance | Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks. |
hypothecation | To pledge property as security for an obligation or loan without giving up possession of it. |
index | An objective economic indicator to which the interest rate for an adjustable-rate mortgage is tied. |
interest | A charge made by a lender for the use of money. |
interest-only loan | A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term. |
loan origination fee | A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount. |
loan-to-value ratio (LTV) | The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral. |
margin | A premium added to the index rate representing the lender’s cost of doing business. |
mortgage | A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien. |
mortgagee | A lender in a mortgage loan transaction. |
mortgagor | A borrower in a mortgage loan transaction. |
negative amortization | Process by which the amount of the loan increases. The mortgagor sets a payment cap, or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance. |
negotiable instrument | A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment. |
PITI | The basic costs of owning a home—mortgage principal and interest, real estate taxes, and hazard insurance. |
prepayment penalty | A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost. |
promissory note | A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party). |
release deed | A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid. |
reverse mortgage | A loan by which a homeowner receives a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the property secured by the mortgage. |
satisfaction of mortgage | A document acknowledging the payment of a mortgage debt. |
short sale | Sale of property in which the sales price is less than the remaining indebtedness. |
straight loan | A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment. |
subject to | Buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. Original seller might continue to be liable for debt. |
trustee | One to whom something is entrusted and who holds legal title to property and administers the property for the benefit of a beneficiary. |
trustor | A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler. |
usury | Charging interest at a higher rate than the maximum rate established by state law. |