Glossary
Adjustable Rate Mortgage (ARM)
A mortgage that is assigned an initial interest rate. The interest rate will adjust periodically according to certain factors, including the index that it is tied to. One of the main benefits of an ARM is that the interest rate is often lower than a standard 30-year fixed-rate mortgage, and may provide the borrower with more payment flexibility. Back to top
Amortization
The process of paying down debt during the term of the loan. Back to top
Amortization Schedule
A table that shows the amortization of a loan, including the original loan amount; monthly payments; interest and principal amounts that are paid off each month; and the ending balance. Back to top
APR
Annual Percentage Rate, states the yearly cost of a mortgage, including the base interest rate, points, fees and costs. Back to top
Cap
A limit set to how much the interest rate can change on an adjustable rate mortgage Back to top
Cash out refinance
A refinance mortgage that is for an amount higher than the balance of the original loan. The balance is taken in cash, which the borrower often uses for home improvement, college, or investments. Back to top
Cashflow
Cash coming in (as income) and cash going out (as expenses). It is the direction of cash flow that determines whether something is income, expense, asset or liability. Cash flow tells the financial story Back to top
CLTV
Combined loan-to-value ratio. The mortgage debt load expressed as a percentage of the fair market value of the subject property. Back to top
Conforming Loans
Loans that fall within the limits set by Fannie Mae and Freddie Mac. Loan amounts that are too large for Fannie Mae or Freddie Mac are referred to as non-conforming loans or jumbo loans. Back to top
Escrow
The process of holding documents and money that is related to the sale or purchase of a property by neutral third party prior to the closing of the transaction. When the transaction is complete, escrow closes, the previous owner's mortgage is paid off, and the new loan is funded. Back to top
Escrow Account
A trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums. Back to top
FICO
A standard personal credit score that was developed by Fair, Isaac, and Company. Back to top
Good Faith Estimate
A written estimate of expected closing costs. Lenders must provide this to potential borrowers within three days of the submission of the loan application. By law, the estimate is to be as accurate as possible. Back to top
Home Equity Line of Credit (HELOC)
A mortgage that allows homeowners to use the equity in their home as collateral. Instead of receiving funds in a single lump sum, borrowers can draw funds as needed up to the pre-arranged amount. Back to top
Impound Account
An account that holds money for property taxes and insurance that is contributed to with each mortgage payment. Many borrowers choose to have impound accounts in order to pay their taxes and insurance incrementally. Back to top
Interest Only Loan
A type of loan for which the monthly payments only pay for the amount of interest that has accrued on the loan balance that month. The loan balance does not decrease with the interest-only payments. Generally, the interest-only payments last only for a preset amount of time. Back to top
LTV
The percentage of the purchase price of a home that was paid for with a mortgage. Back to top
Points
Interest charges that are paid by the borrower when the loan closes. One point is equal to one percent of the loan amount. Back to top
Pre-approval
When a mortgage lender determines how much money they would lend a potential borrower. This estimate is based on a thorough examination of the potential borrower's financial situation. When in the process of buying a home, being pre-approved for a loan may improve your position during negotiations. Back to top
Prepayment penalty
A fee that is charged when a payment that is higher than the minimum is made. This fee does not apply to all loans. Back to top
Prequalification
When a mortgage lender determines how much money they would lend a potential borrower based solely on the financial information disclosed by the potential borrower. The prequalification is not binding and may not be completely accurate. A prequalification is helpful when looking to buy a home. Back to top
Private Mortgage Insurance
If the borrower defaults on a mortgage, PMI protects the lender from financial loss. PMI is generally required if a borrower's down-payment is less than 20 percent of the amount of the loan. Once the borrower has 20 percent equity in the home, the PMI can be discontinued. Back to top
Recision
Most mortgages have a recision period, during which the borrower may choose to cancel the loan. Back to top
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Benchmark Lending Group, Inc. is an Equal Housing Lender. 