Definitions K-O
late charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
lease
Awritten agreement between the property owner and a tenant thatstipulates the conditions under which the tenant may possess the realestate for a specified period of time and rent.
leasehold estate
Away of holding title to a property wherein the mortgagor does notactually own the property but rather has a recorded long-term lease onit.
lease-purchase mortgage loan
Analternative financing option that allows low- and moderate-income homebuyers to lease a home from a nonprofit organization with an option tobuy. Each month's rent payment consists of principal, interest, taxesand insurance (PITI) payments on the first mortgage plus an extraamount that is earmarked for deposit to a savings account in whichmoney for a downpayment will accumulate.
legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
liabilities
Aperson's financial obligations. Liabilities include long-term andshort-term debt, as well as any other amounts that are owed to others.
lien
A legal claim against a property that must be paid off when the property is sold.
liquid asset
A cash asset or an asset that is easily converted into cash.
loan
A sum of borrowed money (principal) that is generally repaid with interest.
loan commitment
See commitment letter.
loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.
loan-to-value (LTV) percentage
Therelationship between the principal balance of the mortgage and theappraised value (or sales price if it is lower) of the property. Forexample, a $100,000 home with an $80,000 mortgage has a LTV percentageof 80 percent.
lock-in
Awritten agreement in which the lender guarantees a specified interestrate if a mortgage goes to closing within a set period of time. Thelock-in also usually specifies the number of points to be paid atclosing.
lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.
margin
Foran adjustable-rate mortgage (ARM), the amount that is added to theindex to establish the interest rate on each adjustment date, subjectto any limitations on the interest rate change.
maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
maximum financing
Amortgage amount that is within 5 percent of the highest loan-to-value(LTV) percentage allowed for a specific product. Thus, maximumfinancing on a fixed-rate mortgage would be 90 percent or higher,because 95 percent is the maximum allowable LTV percentage for thatproduct.
monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
mortgagee
The lender in a mortgage agreement.
Mortgage Broker
Aperson who can help you obtain a mortgage. Mortgage brokers buymortgages wholesale from lenders and sell them to buyers. A mortgagebroker will help you find the best rate available on the market foryour situation.
mortgage insurance
Acontract that insures the lender against loss caused by a mortgagor'sdefault on a government mortgage or conventional mortgage. Mortgageinsurance can be issued by a private company or by a government agencysuch as the Federal Housing Administration (FHA). Depending on the typeof mortgage insurance, the insurance may cover a percentage of orvirtually all of the mortgage loan. See private mortgage insurance(MI).
mortgage life insurance
Atype of term life insurance often bought by mortgagors. The amount ofcoverage decreases as the principal balance declines. In the event thatthe borrower dies while the policy is in force, the debt isautomatically satisfied by insurance proceeds.
mortgagor
The borrower in a mortgage agreement.
negative amortization
Agradual increase in mortgage debt that occurs when the monthly paymentis not large enough to cover the entire principal and interest due. Theamount of the shortfall is added to the remaining balance to create"negative" amortization.
net cash flow
Theincome that remains for an investment property after the monthlyoperating income is reduced by the monthly housing expense, whichincludes principal, interest, taxes, and insurance (PITI) for themortgage, homeowners' association dues, leasehold payments, andsubordinate financing payments.
net worth
The value of all of a person's assets, including cash, minus all liabilities.
note
Alegal document that obligates a borrower to repay a mortgage loan at astated interest rate during a specified period of time.
origination fee
Afee paid to a lender for processing a loan application. The originationfee is stated in the form of points. One point is 1 percent of themortgage amount.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
