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Mortgage Glossary
Payment Cap - Consumer safeguards that limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.
Payment Schedule - The method for disclosing your payment schedule varies by loan type. For fixed-rate loans, the payment schedule indicates what your required monthly payment will be throughout the life of your loan. The payment schedule for VA, FHA, one-time MIP and uninsured conventional loans should also indicate a fixed monthly payment. The payment schedule for fixed-rate insured loans may gradually decrease over time due to a declining insurance premium. For adjustable rate loans, the payment schedules will vary by loan type and are based on conservative assumptions of future interest rates.
Periodic Cap - Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage (ARM) can change in an adjustment interval. This is a limit on the amount that payments can increase or decrease during any one adjustment period.
Principal, Interest, Taxes and Insurance (or PITI) - Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
Planned Unit Development - A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by an owner's association for the benefit and use of the individual units within the project. For a project to qualify as a PUD, the owners' association must require automatic, non-severable membership for each individual unit owner, and provide for mandatory assessments. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
Points - See discount points
Power of Attorney - A legal document that authorizes one person to act on behalf of another. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. In real estate this happens when a buyer or a seller is at another location but would like their friend or family member sign documents on their behalf.
Pre-Approval - The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.
Prepaid Expenses - Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.
Prepaid Interest - Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.
Prepaid Property Tax and Utility Adjustment - The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
Prepayment - Full or partial repayment of the principal before the contractual due date.
Prepayment Penalty - A prepayment penalty is a fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your loan program and applicable state law, you may or may not incur a prepayment penalty. Contact your loan officer for specific information.
Prequalification - The process of finding out how much money you can afford to borrow based on how much you earn in income and how much in liquid assets and liabilities you have. This step is taken before actually applying for a loan.
Principal - The loans balance still owed to the lender or the loan amount borrowed from the lender, excluding interest.
Private Mortgage Insurance - Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)
Property Survey - A legal description of your property and its location and dimensions. An up-to-date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain the property survey for a fee.
Property Taxes - 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. Such services may include police and fire department services, garbage pick up and snow removal.
Purchase Agreement - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
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