An adjustable rate mortgage on which the lender has the right to change the interest rate at any time subject only to advance notice. Discretionary ARMs are found abroad, not in the US. See Morgages a Morgages

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Documentation requirements

The set of lender requirements that specify how information about a loan applicant's income and assets must be provided, and how it will be used by the lender. See What Are Mortgage Documentation Requirements?

Down payment

The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%. To read articles about the down payment, see Down Payment.

Dual apper

A borrower who submits applications through two loan providers, usually mortgage brokers. See Is It OK to Submit Two Mortgage Loan Applications?

Dual index mortgage

A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index. See Dual Index Mortgages.

Due-on-sale clause

A provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market. A mortgage containing a due-on-sale clause is not an assumable mortgage.

Effective rate

A term used in two ways. In one context it refers to a measure of interest cost to the borrower that is identical to the APR except that it is calculated over the time horizon specified by the borrower. The APR is calculated on the assumption that the loan runs to term, which most loans do not. (See Does the Annual Percentage Rate (APR) Help?). In most texts on the mathematics of finance, however, the "effective rate" is the quoted rate adjusted for intra-year compounding. For example, a quoted 6% mortgage rate is actually a rate of .5% per month, and if interest received in the early months is invested for the balance of the year at .5%, it results in a return of 6.17% over the year. The 6.17% is called the "effective rate" and 6% is the "nominal" rate.

Equity

In connection with a home, the difference between the value of the home and the balance of outstanding mortgage loans on the home.

Equity grabbing

A type of predatory lending where the lender intends for the borrower to default so the lender can grab the borrower's equity. Read What Is Predatory Lending?

Escrow

An agreement that money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement. It is common for home mortgage transactions to include an escrow agreement where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due. For articles on this subject, see Escrows.

Escrow abuse

The practice of using escrow accounts inappropriately to generate more income from hapless borrowers. See Escrow Abuse and Manufactured Foreclosures.

Fallout

Loan applications that are withdrawn by borrowers, sometimes because they have found a better deal. See Why Is Locking Unique to Mortgages?

FAMEMP

A fully-amortizing mortgage with equal monthly payments.

Fannie Mae

One of two Federal agencies that purchase home loans from lenders. (The other is Freddie Mac). Both agencies finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools. The securities are guaranteed by the agencies. They also raise funds by selling notes and other liabilities. See What Do Fannie Mae and Freddie Mac Do?

Fees

The sum of all upfront cash payments required by the lender as part of the charge for the loan. Origination fees and points are expressed as a percent of the loan. Junk fees are expressed in dollars.

FHA mortgage

A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium. The major advantage of an FHA mortgage is that the required down payment is very low, but the maximum loan amount is also low. For articles on FHA, see FHA Mortgages.

FICO Score

See Credit Score.

Final prices

The prices paid by the borrower, as opposed to posted prices. The distinction is discussed in Why Do Minorities Pay More For Mortgages?

Financial Services Authority (FSA)

In the UK, a series of sweeping changes beginning in 1997 placed most financial regulation under a new Financial Services Authority (FSA). FSA is an independent non-governmental body but it is answerable to the Treasury and ultimately to the Parliament. In 2004, the FSA took over regulation of the mortgage sector, including mortgage brokers.

Financing points

Including points in the loan amount. Read Can Mortgage Points Be Financed?

First mortgage

A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan. For example, a borrower defaults on a loan secured by a property worth $100,000 net of sale costs. The property has a first mortgage with a balance of $90,000 and a second mortgage with a balance of $15,000. The first mortgage lender can collect $90,000 plus any unpaid interest and foreclosure costs. The second mortgage lender can collect only what is left of the $100,000.

Fixed rate mortgage (FRM)

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage. See Fixed Rate Mortgages.

Fixed-Markup UML

An Upfront Mortgage Lender who discloses his wholesale price and markup. See A New Approach to Selecting a Loan Provider.

Flexible payment ARM

Same as Option ARM.

Float

Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing. Allowing the rate to float exposes the borrower to market risk, and also to the risk of being taken advantage of by the loan provider. See Is it Wise to Float?

Float-down

A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap. A float-down costs the borrower more than a lock because it is more costly to the lender. Float-downs vary widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise. See What Is a Float-Down? Do not confuse with interest rate increase caps and payment increase caps.

Foreclosure

The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults. See Can a Mortgage Lender Profit From Foreclosure?

Forbearance agreement

An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency. See Mortgage Payment Problems: What If You Can't Pay?

Freddie Mac

One of two Federal agencies that purchase home loans from lenders. The other is Fannie Mae.

Front-end fee

Mortgage broker income paid by the borrower, as distinguished from the fee paid by the lender, which is "back-end".

Fully amortizing payment

The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life. See Mortgage Amortization: How Does It Work? On FRMs the payment is always fully amortizing, provided the borrower has made no prepayments. (If the borrower makes prepayments, the monthly payment is more than fully amortizing). On GPMs, the payment in the early years is always less than fully amortizing. On ARMs, the payment may or may not be fully amortizing, depending on the type of ARM. See How Does Negative Amortization on a Mortgage Work?

Fully indexed interest rate

The current index value plus the margin on an ARM. Usually, initial interest rates on ARMs are below the fully indexed rate. If the index does not change from its initial level, after the initial rate period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap