Mortgage Glossary
There are a lot of unfamiliar terms that get tossed around during the mortgage process. But don't worry, we've put together this glossary to help you get a better grasp of any terms that may be less than clear.
L
Loan Estimate
A universal form, created by the Consumer Financial Protection Bureau (CFPB), that is provided to the borrower within three business days after receipt of the loan application. The form contains important details about the loan, including the estimated interest rate, monthly payment and total closing costs. It will also detail any special loan features such as increases in the interest rate, the mortgage loan balance or prepayment penalties.
Loan Origination
The process by which a mortgage lender creates a mortgage secured by real property.
Loan Term
The number of months that you will make monthly payments. If the loan term is the same as the payment calculation term, you will pay the loan in full during the loan term and no balance will be due. If the payment calculation term is greater than the loan term, a balance or "balloon payment" may be due at the end of the loan term.
Loan to Value Ratio (LTV)
A ratio used by lenders to calculate the loan amount requested as a percentage of the value of a home. To determine the loan to value ratio, divide the loan amount by the home's value. The LTV ratio is used to determine what loan types the borrower qualifies for as well as the cost and fees associated with obtaining the loan.
Lock
Written agreement in which a lender guarantees a specific interest rate if a loan closes within a set period of time. The lock-in may also specify the number of discount points to be paid at closing.
Lock Period
The number of days that the lender will guarantee the interest rate offered for a loan. In order to hold the guaranteed interest rate for a loan, the loan closing must occur during the lock period.
Lock-in
Written agreement in which a lender guarantees a specific interest rate if a loan closes within a set period of time. The lock-in may also specify the number of discount points to be paid at closing.
London Inter-Bank Offered Rates (LIBOR)
An index used to establish the interest rate of some adjustable rate mortgages (ARM). LIBOR is the London Inter-Bank Offered Rates. This is the interest rate at which the highest rated banks offer to lend to one another in eurodollars. LIBOR offers various maturities, including 1-month, 3-month, 6-month and 1-year, however, the 6-month index is most common for mortgages. LIBOR is quoted daily in the Wall Street Journal's Money Rates.
Lot Drawing
A fee, usually associated with a survey or title policy to obtain a plat of the property to verify that there are not encroachments or easements that would affect a lender's desire to provide financing. For our comparison purposes, the lot drawing fee is considered to be a third party fee.
M
MACRS
Modified Accelerated Cost Recovery System.
Maintenance
Activities required to compensate for wear and tear on a property.
Management fee
The fee charged for professional property management. Usually set at a fixed percentage of total rental income generated by the managed property.
Mansion Tax
A tax charged by some state or local governments at the time of transfer of real estate title from one owner to another particularly for high valued properties. For our comparison purposes, this fee is considered to be a tax or other unavoidable fee.
Margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Master Association
A homeowners' association sometimes formed in a large condominium project or planned unit development (PUD) that is made up of representatives from associations covering specific areas within the project.