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Negative amortization:
Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the balance due is added to the loan balance making it rise - thus "negative amortization".
Notice of default:
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Payment cap:
A provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; be aware that on some ARMs this may lead to "negative amortization".
PITI:
Stands for principal, interest, taxes and insurance -- the components of a monthly mortgage payment.
Points:
A one-time charge by the lender to increase or decrease the stated interest rate on a loan. To decrease the interest rate, the borrower "pays" points, to increase the interest rate, the borrower "receives" points. All interest rate/point combinations are virtual financial equivalents.
Prepayment penalty:
A fee charged to a borrower who pays off a loan before it is due. Some loan programs contain a prepayment penalty, others do not - check with your loan officer for details.
Prequalification:
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
Principal:
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private mortgage insurance (PMI):
Insurance provided by a nongovernmental insurer that protects lenders against a loss if a borrower defaults. Usually required on all loans with an "LTV" of more than 80%.
Purchase and sale agreement:
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
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