Glossary

A
Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate varies in accordance with a formula specified in the mortgage note which includes use of a specified index and may result in changed monthly payments.

Annual Percentage Rate (APR)
Actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan.

Appraisal
A written analysis of the estimated value of your property. It insures you are paying a fair market value for your home and is required to close on your new home or property.

B
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.

Billing Cycle
The period or number of days shown on a billing statement in which interest is billed.

Bond Loan
A state sponsored method of assisting borrowers and first-time buyers in the purchase of a home at a reduced interest rate.

C
Closed-End Loan
A credit arrangement in which the borrower and lender agree on the total amount loaned and the number, amount and due dates of each payment; all proceeds are advanced at time of closing.

Closing Costs or Settlement Fees
Fees paid to effect the closing of a mortgage (e.g., origination fee, discount points, title insurance fees, survey fees, and attorney's fees).

Collateral
The security offered by the borrower to secure his promise to pay a debt; the security may become the property of the lender, if the borrower fails to repay the funds.

Combined Loan-to-Value
The relationship of the outstanding balances of a first and second mortgage to the appraised value of the security used to determine the maximum lendable amount on real estate.

Commitment
A lender's offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and other conditions. It can also serve as a communication of the lender's decision on the borrower's application.

Conforming Mortgage Loan
A loan which meets all requirements to be eligible for purchase or securitization by federal agencies other than FHA and VA.

Conventional Loan
A mortgage loan which is not insured or guaranteed by a government agency such as FHA or VA.

Credit Pre-Approval
A process in which an individual can apply for a GMAC Mortgage Expressway credit pre-approval before he/she actually finds a home and enters into a sales agreement.

Credit Report
A report on the credit standing of a prospective borrower, used to aid in the determination of credit worthiness.

Current Debt
The amount of money owed on a property, or other secured or unsecured loan balance, such as credit cards or car loans.

D
Debt-to-Income Ratio
A measure of creditworthiness computed by dividing the dollar amount of monthly debts by total gross monthly income, then converting the result to a percentage.

Delinquent
The state of being one or more months behind the loan payment schedule.

Downpayment
A portion of the sales price paid by a buyer to a seller to close a sales transaction, with the understanding that the balance will be paid later.

E
Economic Indicator
A variety of indicators, such as the Consumer Price Index or the Gross Domestic Product (GDP), that predict where the interest rates may be heading in the coming months.

Equity
The difference between the current market value of a property and the total amount of outstanding liens against the property.

Escrows
Lenders often establish an account, called escrow or impound account, to pay the tax and insurance and other additional charges of your monthly mortgage payment.

Escrow Payment
The portion of the mortgage payment used to pay taxes and insurance premiums by the lender or designated loan servicer. May also be called impounds or reserves.

F
Federal Home Loan Mortgage Corporation ("Freddie Mac")
A stockholder-owned corporation, a portion of which is supported by the U.S., supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs.

Federal National Mortgage Association ("Fannie Mae")
The nation's largest mortgage investor.

FHA Loan
A loan insured by the Federal Housing Administration.

Finance Charge
The cost of interest and other charges involved in borrowing money.

First Mortgage
A mortgage which has priority over all other voluntary liens against a certain property; used in states that secure loans against real property with a Mortgage.

Fixed Rate Loan
A loan with an interest rate that remains the same over the life of the loan.

Fixed Rate Mortgage
A mortgage in which the interest rate and monthly payments of principal and interest remain the same for the life of the loan.

Floating Your Rate
A loan application which is processed at a market rate. This means the applicant decides against locking-in the interest rate at the time of application and instead elects to float with the market until a later date at which time he/she will request the lender to lock-in the interest rate.

G
Gift Letter
A written statement from friends or family that explains gift funds given to a borrower to purchase a home. Must state that no repayment of funds is expected.

Good Faith Estimate
An estimate given to the borrower within three days of formal application that lists the costs they will incur at closing.

H
Hazard Insurance
Insurance coverage that provides compensation to the insured in case of property loss or damage.

Home Equity Line of Credit
A line of credit which is based on the lendable equity the borrower has in the home.

Homeowner's Insurance
Includes the coverage for hazard insurance plus added coverage such as personal liability, theft away from the home, and other such coverage.

I
Income
The amount of money received during a period of time.

Interest
Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in a property.

Income-to-Debt Ratios
A qualifying ratio used in underwriting a residential mortgage loan which computes the percentage of monthly income required to meet the monthly housing expense.

J
Jumbo
A loan that exceeds the statutory size limit eligible for purchase or securitization by federal agencies other than FHA and VA.

K

L
Line of Credit
Type of loan in which the borrower may draw on funds at any time, up to an established maximum limit; the borrower may borrow, repay, and borrow again, any and all of the credit extended; a revolving loan.

Loan-to-Value Ratios
The ratio of mortgage amount to appraised value or sales price of real property. Used by lenders to determine maximum loan amounts set by secondary market investors and/or government insuring agencies.

Loan Term
The period of time between the commencement date and the termination date of a note or a mortgage.

Locking Your Rate
A procedure where a lender agrees to lock-in a specific interest rate (initial interest rate in the case of an adjustable rate mortgage) on a mortgage loan request for a specified period of time.

M
Margin
Percentage added to the index by the lender to determine the interest rate.

Maturity Date
The date that a loan is due to be paid in full.

Mortgage Insurance (PMI)
Insurance that protects a mortgage lender against loss in the event of default by a borrower.

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 the insurance proceeds.

Mortgage Term
Overall repayment period of the mortgage.

N
Note Rate
Actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan. Also known as annual percentage rate (APR).

O

P
Prepayment Penalty
A fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your GMAC Mortgage loan program, you may or may not incur a prepayment penalty. Please contact a GMAC Mortgage loan "advisor" for more information.

Prime Rate
The most favorable interest rate charged by a commercial bank for short term loans; a benchmark from which a bank computes an appropriate rate of interest for a loan contract.

PITI
Acronym for items included in a monthly mortgage payment: principal, interest, taxes and insurance.

Point
An amount equal to one percent of the principal amount of the mortgage.

Principal
The original balance of money lent, excluding interest.

Property Appraisal
An opinion or estimate of the property's value made by an independent appraiser or by a member of the lender's staff.

Property Tax
The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Services may include police and fire department, garbage pick up and snow removal.

Q

R
Rate Cap
Consumer safeguards that protect the interest rate during the application and processing period.

Rate Guarantee
The interest rate lock feature that lenders offer to borrowers.

Reconveyance
An instrument used to transfer title.

Refinance
The repayment of a debt from the proceeds of a new loan using the same property as security.

S
Second trust deed
A loan on a property that was made after the first deed.

Servicing
A mortgage banking function following loan closing which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures.

Settlement
The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.

Subordination Agreement
An agreement by which an encumbrance is made subject to a junior encumbrance; a lender with a loan in second position agrees to stay in second position on the property, even when the loan in first position has been rewritten or refinanced.

T
Title Insurance
A contract by which the insurer agrees to pay the insured a specified amount for any loss caused by defects of title to real estate.

U
Underwriting
The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, the borrower's ability to repay the loan and the application of criteria specified by an investor.

Unsecured Loan
Personal loans requiring no security, such as those borrowed from a friend or family member.

V
VA Loan
A loan guaranteed by the Department of Veterans Affairs.

W

X

Y

Z