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Negative amortization
Occurs when a borrower's monthly payment is too small to cover both the principal and interest of a loan, so the outstanding balance of the loan actually grows larger with each payment.  Many adjustable rate mortgages are susceptible to this.

Net cash flow
Income from an investment property after expenses such as principal, interest, taxes and insurance are subtracted.

Net worth
The worth of a person or company based on the difference between total assets and liabilities.

No-cash-out refinance
When the amount of the new mortgage covers the remaining balance of the first loan plus closing costs and any liens, and yields no more than 1 percent of the new loan's principal in cash.

No-documentation loan
A loan application that does not require verification of income or assets and is generally based on a combination of strong credit with a large down payment.

Non-assumption clause
A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.

Non-conforming loan
A non-conforming loan is any loan that doesn't meet the qualifications or is too large to be purchased by Fannie Mae or Freddie Mac.

Non-liquid asset
An asset such as a house that is not easily turned into cash.

Nonrecurring closing costs
Fees that are only payable once such as appraisal, loan points, credit report, title insurance and home inspection.


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Note

A legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

Note rate
The interest rate specified in a mortgage note.

One-year Adjustable Rate Mortgage
A mortgage whose interest rate changes yearly.  The rate is usually based on movements of a published index plus a specified margin.

Option
A situation in which a buyer puts down money for the right to purchase a piece of real estate within a set time period but does not have an obligation to buy.

Option Arm Loan
A home loan where the borrower has multiple payment options each month.

Original principal balance
The amount of principal owed on a loan before a borrower makes any payments.

Origination fee
A fee charged by most mortgage lenders to cover costs of arranging the loan.

Owner financing
A transaction in which the seller of a property agrees to finance all or part of the purchase.

Payment cap
A limit on the amount a monthly payment can increase on an adjustable rate mortgage.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Per-diem interest
Interest charged or accrued daily.

Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any single adjustment period.

Periodic Rate Cap
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.

PITI (principal, interest, taxes, and insurance)
A payment amount calculated by a mortgage lender to include the total payment of all principal, interest, taxes and insurance due monthly.

Pledged Account Mortgage (PAM)
A type of mortgage that is tied to a pledged savings account and this fund (plus earned interest) is gradually used to reduce mortgage payments.

Point
Fees charged by a lender to provide a lower interest rate.  One point equals one percent (1%) of the loan amount.  Also referred to as a discount point.


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Pre-approval

A thorough assessment made by a lender of a potential borrower's ability to pay for a home and a confirmation of the amount to be borrowed.  The completion of a loan application is necessary to close the loan.

Pre-approval letter
A letter from a lender that states the amount of money a potential buyer can obtain.

Prepaid expenses
Expenses including taxes, insurance, and assessments that are paid before the due date.

Prepaid fees
Funds collected by the lender from the borrower to pay certain recurring items in advance, including interest, property taxes, hazard insurance and, if applicable, private mortgage insurance (PMI).

Prepaid interest
Interest paid before it is due.

Prepayment penalty
A penalty that a lender may impose on a borrower who pays a loan off before its expected end date.

Prequalification
A lender's preliminary assessment of a buyer's ability to pay for a home and an estimate of how much the buyer may borrow.

Principal
The amount of money originally borrowed in a mortgage, minus any payments made subsequently.

Principal paid over life of loan
The sum of scheduled principal payments calculated by the lender to equal the face amount of the loan.

Principle of conformity
The idea that a house will more likely appreciate in value if its size, age, condition and style are similar to other houses in the neighborhood.

Private mortgage insurance (PMI)
A form of insurance required by a lender when the borrower's down payment or home equity percentage is less than 20 percent of the home value.

Processing fee
A fee charged by some lenders for gathering information necessary to process the loan.

Property tax
Tax paid on privately owned property.  Property taxes are usually paid semiannually, or monthly if the lender requires.  The amount is based on local tax rates and assessed property value.


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Purchase-money mortgage (PMM)

A mortgage obtained by a borrower as partial payment for a property.

Qualifying ratio
A ratio calculated by a lender to determine how much a potential buyer can borrow.

Quitclaim deed
A document that releases a party from any interest in a piece of real estate.

Rate cap
The maximum interest rate allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Rate lock
A lender's commitment to a borrower to guarantee (or "lock in") a specific interest rate for a limited amount of time.

Rate-improvement mortgage
A loan with a clause that entitles a borrower to a one-time interest rate cut without going through refinancing.

Recording fee
A fee charged by real estate agents for conveying the sale of a piece of property into the public record.

Refinancing
The process of replacing an older mortgage with a new mortgage.

Regulation Z
A federal code issued under the Truth in Lending Act that requires a borrower be advised in writing of all costs associated with the credit portion of a financial transaction.

Rehabilitation mortgage
A mortgage that provides for the costs of repairing and improving a resale home or building.

Remaining balance
The amount of unpaid principal on a home loan.

Remaining term
The original loan term minus the number of payments made.

Rescission
The cancellation of a contract by law or consent from the parties involved.

Reverse mortgage
A special type of loan available to equity-rich, older home owners.  Repayment is not necessary until the borrower sells the property.  Many downsides exist to these loans.

Right to rescission
A provision in the federal Truth in Lending Act that allows borrowers to cancel certain kinds of loans within three (3) days of signing.


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