Glossary of Terms

• Payment Cap

  The limited amount by which the payment on an adjustable rate loan can increase or decrease at each payment adjustment interval (typically one year). A payment cap ensures that payment changes occur at a gradual pace. If the adjusted payment isn't sufficient to cover the amount of interest due on the loan due to the payment cap, the unpaid (deferred) interest is added to the loan balance. This is known as "negative amortization." Since most adjustable rate loans have a maximum amount of allowable negative amortization, once this maximum has been reached, the payment will have to be adjusted beyond the payment cap to ensure that the loan will be paid off in the allotted number of years. Provisions for these special adjustments will be in the loan documents.
  
  
• PITI

  Refers to principal , interest , taxes , insurance . The total of the monthly home loan payment including taxes and insurance.
  
  
• Prepayment Clause

  Clause in mortgage, mortgage note or land contract providing that debtor may pay more than agreed installment payment at any time.
  
  
• Private Mortgage Insurance (PMI) (also called Mortgage Insurance Premium (MIP))

  Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.
  
  
• Processing (turnaround) Time

  The amount of time required from the day loan application documents are submitted in full to the day the loan closes and loan funds are disbursed. This is the total processing time for a home loan.
  
  

• Percolation Test (Perk)

  The test to determine the capability of the soil to absorb liquid. Both for construction and septic systems.
  
  
• Points and Fees

  A point is a charge equal to one percent of the principal amount of the loan (e.g., 2 points charged on a $100,000 loan would equal $2,000). Points are generally payable at closing and may be paid by the Buyer or Seller, or split between them. In addition, a flat dollar amount fee may also be charged. Under some lending programs, a Buyer may be allowed to include these points and fees as part of the total amount financed.
  
  
• Prepayment Penalty

  A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.
  
  
• Pro-rate

  To allocate between Seller and Buyer their proportionate share of an obligation paid or due.
  
  
• Purchase Money Mortgage

  (1) A mortgage given from Buyer to Seller to secure all or a portion of the purchase price.
  (2) Any mortgage from which the funds are used to purchase the property.