| Term |
Definition |
| Impound |
That portion of a
borrower's monthly payments held by the lender or servicer to pay
for taxes, hazard insurance, mortgage insurance, lease payments, and
other items as they become due. Also known as reserves. |
| Index |
A published interest rate
against which lenders measure the difference between the current
interest rate on an adjustable rate mortgage and that earned by
other investments (such as one- three-, and five-year U.S. Treasury
Security yields, the monthly average interest rate on loans closed
by savings and loan institutions, and the monthly average
Costs-of-Funds incurred by savings and loans), which is then used to
adjust the interest rate on an adjustable mortgage up or down.
|
| In-File Credit Report
|
Information issued by one
credit repository that contains an individual credit history for you
to review in determining a loan applicant's creditworthiness. |
| Initial Interest Rate
|
The initial interest rate
is the rate you pay when you first get your loan. On an ARM, this
rate may be for 5 years (5/1 ARM) or only a month. |
| Installment Debt |
Liability that typically
has a fixed interest rate, fixed term, and equal payments amortized
over a set number of months, agreed upon by the lender and the
borrower prior to disbursement. |
| Interest |
A charge paid for borrowing
money. Interest is usually expressed as a percentage of the amount
borrowed or interest rate. |
| Interest Cost |
Interest cost shows how
much you will pay in interest over the life of the loan, assuming
you keep the loan for the entire period. |
| Interest Due |
Interest due is the portion
of the mortgage payment that goes toward interest. When you close on
your home, you will usually owe interest for the time between your
closing date and when you make your first payment. |
| Interest Rate |
The annual rate of interest
on the loan, expressed as a percentage of 100. |
| Interest Rate
Adjustment Period |
The interest rate
adjustment period is how often your rate is adjusted on an ARM after
the initial rate period is over. For example, a 5/1 ARM means you
have an initial rate period of 5 years that is fixed and then after
5 years, your rate changes every year. |
| Interest Rate Ceiling
|
The interest rate ceiling
is the highest interest rate possible under an ARM. You may hear
this called the lifetime cap and it based on the number of
percentage points your rate can increase from your initial rate.
|
| Interest Rate Decrease
Cap |
An interest rate decrease
cap is the maximum allowable decrease in your interest rate (on an
ARM) each time your rate is adjusted. It is usually 1 or 2
percentage points. If rates go down 4% your rate may only go down 2%
due to the cap. |
| Interest Rate Floor |
The rate floor is the
lowest interest rate possible under an ARM loan. |
| Interest Rate Increase
Cap |
The interest rate increase
cap is the maximum allowable increase in your interest rate (on an
ARM) each time your rate is adjusted. It is usually 1 or 2
percentage points. For example, if your rate adjusts every year,
each year it cannot exceed the stated cap. |
| Interest Rate Index |
The interest rate index is
the specific fund/security that your interest rate on an ARM is tied
to. Common indexes are Treasury Constant Maturities or Cost of Funds
indices. All the indices are published regularly in readily
available sources. |
| Investor |
Money source for a lender.
|
