Acceleration – A provision that allows the lender to demand repayment of the entire outstanding loan balance in the event that the borrower violates one or more clauses in the note.

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ARM (Adjustable Rate Mortgage) – A mortgage containing an interest rate that, after an initial period, can be changed by the lender. The majority of these contracts handle rate changes by evaluating a pre-determined interest rate index over which the lender has no control.

Amortization – The repayment of mortgage loan principal using scheduled mortgage payments that are of a high enough amount to exceed the accrued interet due. The scheduled payment minus any interest due equals amortization. The outstanding loan balance decreases by the amount of the scheduled payment, plus the amount of any extra payments.

Amortization Schedule – A table detailing the mortgage payment and the breakdown of principal and interest throughout the life of the loan. It is usually broken down by interest and amortization, the loan balance, tax and insurance payments, and the balance of the escrow account.

Annual Percentage Rate (APR) – A general measure of the cost to the borrower that includes interest rate, points, and other various charges. APR is calculated with the basic assumption that the loan will be held for the entire duration, and is therefore potentially deceptive if a borrower has intentions of refinancing.

Assumable Mortgage – A mortgage contract that allows an acceptable buyer to assume the mortgage contract from the seller. Assuming a loan could save the buyer money if the potential interest rate on the seller’s existing loan is below the current market rate. By using this technique, closing costs are avoided as well.

Automated Underwriting – The process of using pre-defined criteria entered into the lender’s computer system to inform the loan applicant almost immediately whether or not they will be approved for a mortgage loan. The computer’s decision is based on data provided by the applicant, as wll as other available electronic data such as credit history.

Balloon Mortgage – A mortgage contract that creates an outstanding balance, which is payable in full after a period that is actually shorter than the term. In most cases, the balance is refinanced because the borrower does not have a lump sum available to pay the remainder of the loan in one lump sum. Balloon mortgages are similar to ARMs in that the borrower exchanges a lower rate in the early years for the risk of a higher rate later. Balloons are riskier than ARMs because there is no limit to the potential increase at the end of the balloon period.

Bi-monthly Mortgage – A mortgage where the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th. The purpose of this technique is to ease the burden of having to come up with a larger sum of money once each month.

Bi-weekly Mortgage – A mortgage where the borrower pays half the normal monthly payment every two weeks. This ultimately results in 26 payments every year instead of the normal 24, so this technique will result in amortization before term.

Bridge Loan – A short-term loan, usually from a bank, that “bridges” the period between the closing date of a home purchase and the closing date of a home sale.

Buy-down – The payment of points to the lender in exchange for a lower interest rate.

Buy-up – Paying a higher interest rate in exchange for a rebate from the lender, which ultimately reduces upfront costs.

Cash-Out refi – Refinancing for an amount in excess of the balance on the old loan. The borrower receives the loan proceeds that are above and beyond the total paid to the initial mortgage, hence the term “cash out”. This way of raising cash is usually an alternative to taking out a home equity loan.

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Closing – On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan.

Co-Borrowers – One or more persons who have signed the note, and are equally responsible for repaying the loan.

Contract knavery – Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrower�s knowledge.

Co-signing – Assuming responsibility for someone else’s loan in the event that that party defaults.

Credit score – A numerical score, based on an individual’s credit history, that is designed to measure that person’s credit worthiness.

Cumulative interest – The sum of all interest payments to date or over the life of the loan.

Default – Failure of the borrower to honor the terms of the loan agreement.

Delinquency – A mortgage payment that is more than 30 days late.

Demand clause – A clause in the mortgage contract that allows the lender to demand repayment at any time for any reason.

Down payment – The amount of money a home buyer will be paying directly, rather than obtaining through a loan or mortgage.

Due-on-sale clause – A provision of a loan contract that stipulates when the property is sold any outstanding loan balance must be repaid. This prevents the seller from transferring responsibility for an existing to the home buyer.

Equity – The difference between the appraised value of a home and the outstanding balance of any mortgage or equity loans against that property.

Equity grabbing – An unethical type of predatory lending where the loan provider purposely attempts to put the borrower into a loan that will result in a relatively quick default, so that way the lender can “grab” the borrower’s equity.

Escrow – Specifically, an agreement wherein money is deposited with a third party for safe keeping, until certain criteria are met by one of the parties to the agreement. Relating to mortgages, the borrower usually escrows a specified sum for taxes and insurance by adding that amount to the regular monthly mortgage payment. The lender then pays the taxes and insurance on the borrower’s behalf.

Floating – Allowing the mortgage interest rate to vary with changes in market conditions during the application phase of the mortgage up until 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.

Foreclosure – The legal process by which a lender may acquire possession and ownership of the property securing a mortgage loan if the borrower defaults on the payments.

Forbearance agreement – An agreement by the lender to delay their right to foreclose in exchange for a new or amended agreement with the borrower to a payment plan that is intended to bring the borrower current on any and all outstanding monthly payments.

Equity Gift – When a property’s sale price is below market value, the difference is considered a gift from the sellers to the buyers. Such gifts are usually seen only between family members. Lenders will often permit the gift to count toward the buyer’s down payment.

Good faith estimate – The standard form from a lender that details any and all anticipated settlement charges that the borrower should expect to pay at closing. The lender is required to provide this document within three business days of their receipt of a loan application.

Graduated payment mortgage (GPM) – A mortgage contract wherein the monthly payments rise by a constant percent for a specified number of months, then after which level out for the remaining duration of the loan.

Homeowners insurance – A type of “property & casualty” insurance purchased by the borrower, and required by the lender, which is designed to protect the property against potential losses.

HUD-1 form – A form the borrower receives at settlement which details all payments between parties in a real estate transaction, including borrower, lender, seller, mortgage broker, attorneys, etc.

Interest-only mortgage – A mortgage in which, for some pre-arranged period, monthly payments will be applied to the loan’s interest only. Most of the time, this results in lower monthy payments, but during that period the principal loan balance remains unchanged.

Lien – The lender�s right to take possession of the borrower�s property in the event the borrower defaults on the monthly loan payments.

Lock commitment letter – A formal document from a mortgage lender verifying that the price, interest rate, and multiple other facets of a loan contract have been locked.

Mortgage broker – An independent loan agent who has the ability to offer loan products from multiple lenders. A mortgage broker’s responsibilities include counseling the buyer, explaining features of the loans available from different wholesalers, taking and completing the loan application.

Negative amortization – An increase in the outstanding loan balance, resulting from multiple monthly payments that are less than the interest due.

Non-conforming mortgage – A mortgage that does not meet the requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it’s either too large or the borrower has poor credit or inadequate documentation.

Origination fee – A service fee charged by lenders, usually quoted as a percentage of the loan amount. This fee is in addition to other charges from the lender, including points, so it should be added into the borrower’s calculation when comparing costs between brokers.

Piggyback mortgage – A combination of a first mortgage for 80% of the total financing needed, and a second for the remaining balance, usually between 10-20% depending on the borrower’s down payment amount. This technique is often used by borrower’s to avoid having to pay the PMI.

Points – An upfront cash payment by the borrower to the lender for the purpose of obtaining a lower interest rate on the mortgage loan. One point is equal to one percent of the loan. Essentially, buying points is the equivalent of paying some of the mortgage’s interest up front, therefore lenders are willing to decrease the rate.

Pre-approval – A commitment by a lender to give a loan to a borrower, without the borrower having chosen a property yet. The pre-approval is designed to make it easier for the borrower to shop for a house.

Prepayment penalty – A charge imposed by the lender if the borrower pays off the loan early.

Qualification – The lender’s process of determining whether or not a potential borrower has the ability to repay a mortgage loan. Qualification is less comprehensive than an approval because it does not take into account the borrower’s credit.

Rate protection – Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes.

Refinance – Paying off an old loan while simultaneously taking a new one.

Rescission – The right of the borrower to completely cancel the entire deal without fear of reprisal of repimanding. The buyer is required to submit such a request in writing within three days of closing.

Second mortgage – An additional loan against a property that is still under finance from a first lender. Usually, the maximum amount of the second
is calculated as a percentage of the existing equity in the property. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Sub-prime borrower – A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers and are sometimes taken advantage of.

Title insurance – Insurance against loss arising from problems connected to the title to property.

Underwriting – The process of examining all the data about a borrower’s property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.

Wrap-around mortgage – A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage. Wrap-around mortgages arise when the current market rate is above the rate on the existing mortgage, and home sellers are frequently the lender.

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I asked my mortgage advisors, “What are the fees that a broker might charge you that are either inflated or completely bogus?”

Here are the answers:

Processing fee -
Not only does the mortgage broker receive a fee from the lender, but the borrower is also charged a fee for �processing� the loan. This fee usually cannot be avoided, but beware of brokers who charge more than $1000.00, as this is considered very excessive.

Real estate agent’s administrative fee -
Many real estate agencies have started charging a fee, around $200, to both buyer and seller. This is in addition to any real estate commission earned by the agents.

Mortgage Origination Fee -
The origination fee is basically what the broker charges for doing the loan, normally between 1-2% of the loan amount. This is a common fee for a broker’s services, but unless you have a very complicated loan, paying 2% is too high.

Credit Report Fee -
When working with a mortgage broker, be sure that they provide you with a copy of the credit report they pulled on you. Too many times, finance companies will provide brokers access to applicant’s credit report databases for free, however the brokers will still add a charge of between $25-50 to the settlement costs. In that case, the broker is simply making an additional profit. Your charge should not be higher than the actual cost to the lender or broker, if indeed there was a charge to them at all.

Fax Fee -
The broker will very often add a “fax fee” to the settlement sheet. Usually this charge is between $20-40, but rarely do brokers explain it. In today’s age, it’s difficult to conceive how a professional brokerage can accumulate such a significant cost for simply faxing paperwork about you and your loan application.

Warehouse Fee -
This is a fee that numerous brokers and mortgage lenders will add to the settlement sheet but fail to explain in any detail. Indeed, getting a clear description is difficult since this is one of the most blatant junk fees you can imagine. During the course of your loan approval and applicatoin process, where is there a warehouse involved? Since everything is electronic nowadays, there isn’t some gigantic warehouse somewhere far away, where a loan broker will have to wander through the depths of the aisles searching for a box with your name on it… This is a ridiculous junk fee that should never be paid.

Consulting Fee -
Many brokers, moreso than lenders, will add this fee to your settlement sheet. Too often, since it indeed has a legitimate sound to it, many borrowers will not question it and will simply pay. However, this is actually a fee that you should not pay because it is vague and unnecessary. The explanation is that there is a fee the broker is passing on to the borrower for “consulting” with another professional or another company when evaluating your loan application. Most of the time, since computers make a large portion of the decisions, there is no consultation that is required. Even if there was a consultation, that is something the borrower should not be responsible for.

Endorsement Fee -
This is another legitimate-sounding fee that both mortgage brokers and mortgage lenders will add to the settlement sheet. Apparently, they are charging you to recoup the costs they incurred while getting your application and approval paperwork signed by the appropriate parties. Now, since we’ve never heard of a lender getting one of their applications signed by someone outside their own company, how can they claim that it was an expense to get your applicatoin signed?

Express Mail Fee -
Brokers and lenders will try to charge you for mailing your paperwork back and forth, usually claiming that they had no choice but to send your application overnight, or something to that effect. However, this is almost always untrue because there is rarely any actual paperwork during the application phase of a loan. Plus, mailing documents regarding your application is an ordinary expense for a loan company, therefore it should be absorbed by them. If not, these costs should be covered by your application fee or origination fee, and not an additional charge.

Document Preparation Fee -
Here’s another junk fee that brokers will usually try to sneak in on the settlement sheet. They’re trying to justify more money by claiming that they should get paid for preparing your loan application and other documents. Well then what does the application fee cover?

Miscellaneous Fee -
When lenders and brokers cannot think of any other legitimate-sounding fees to add to your settlement sheet at closing, yet they still need to pad their bottom line a little more, they’ll usually include a Misc Fee and state that this is to cover the other little thing that they couldn’t itemize or separate from everything else. Never pay this fee. The reason for itemization on your sheet is to make sure that nothing is vague or goes without explanation. Therefore, the concept of Misc Fees goes against the itemization.

Underwriting Fee -
Many brokers will try to add an Underwriting Fee to their charges at settlement, and many times this fee is a few hundred dollars. However, keep in mind that the mortgage brokers do not underwrite the loans! There is no way a broker should be paid for underwriting because their job is not to underwrite, but rather to pass your information to the lender. It is the lender who will underwrite your loan, not the broker.

Courier Fee -
Lenders will usually add a courier fee to the settlement sheet to offset their costs from shipping your closing documents to the escrow company. Many times, these charges will be in excess of $50. This is junk because part of the lender’s standard responsibility is to ensure your documents arrive at the appropriate places on time, and you should not be responsible for their procrastination. Plus, every major courier service (FedEx, UPS, DHL, etc.) charge less than $25 to ship documents overnight anywhere in the world. Keep an eye out for this fee, which is usually padded in addition to being junk to begin with.

If you find some of these fees on your mortgage fee breakdown. Talk with your mortgage broker and see if you can have some of them lowered or removed.