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Glossary

Mortgage Terms Defined

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  • PITI
    Principal balance plus interest, taxes and insurance.
  • PITI Reserves
    A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of(...)
  • Points
    A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
  • Power of Attorney
    Legal document authorizing one person to act on behalf of another.
  • Pre-Approval
    The process of determining how much money you will be eligible to borrow before you apply for a loan.
  • Prepaid Interest
    Charged to a borrower at closing to cover interest on the loan between the closing date and the end of the month.
  • Prepayment Penalty
    A fee that may be charged to a borrower who pays off a loan before it is due.
  • Prequalification
    The preliminary process of determining how much money a prospective homeowner may borrow, prior to application for a loan.
  • 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, 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 monthly cost of property taxes and homeowners insurance,(...)
  • Private Mortgage Insurance
    Mortgage insurance 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.
  • Profit and Loss Statement (P and L)
    A financial statement showing revenue, expenses and profits over a period of time.
  • Property Tax
    A government tax based on the value of a property.
  • Purchase Agreement
    A contract signed by the buyer and seller stating the terms and conditions of a home sale.
  • Qualifying Rate
    Adjustable rate mortgages (ARMs) often employ a “qualifying rate” that differs from the “start rate.” The qualifying rate may be a pre-determined percentage of interest, expressed as the “highest possible rate of interest at the beginning of the second year”, based on start rate, expressed as(...)
  • Qualifying Ratios
    Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
  • Rate Lock
    A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
  • Real Estate Agent
    A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
  • Real Estate Agent®
    A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.
  • Real Estate Settlement Procedures Act (RESPA)
    A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
  • Real Property
    Land and everything that is permanently affixed to it.
  • Recast
    A recast is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, an individual pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.
  • Reconveyance
    The transfer of a property back to the owner when the mortgage is fully repaid.
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