Amortization – periodic payments of a debt composed of an amount to reduce the principal of the debt and the other to pay the interests.

Applicant or Principal Debtor – person or legal entity that applies for the loan and is obligated to repay the debt.

Appraisal – report made by a qualified appraiser that sets forth the appraiser’s opinion about a real property’s market value, which is determined by investigating and conducting studies on the property.

ARM (adjustable rate mortgage) – Its initial interest is fixed during a term and then gets adjusted periodically. Both the term of the first interest revision as well as the subsequent revisions are establish at closing and can be for 1 year, 3 years or 5 years. The interest will be adjusted according to the changes in the index established at the closing of the loan. After each adjustment, the type of interest remains fixed until the next adjustment. This type of mortgage loan gives the client the advantage of repaying the loan with an initial interest rate that is lower than the prevailing in the market and offers him the stability of maintaining a fixed interest rate between adjustment dates.

Bankruptcy – occurs when a person declares himself insolvent or incapable of paying his debts and requests the Federal Bankruptcy Court to administer his assets and divide them among his creditors.

Bi-weekly – it is a type of mortgage loan where the payment has to be made every 14 days ( every two weeks). Thus, both the principal on the mortgage loan amortizes quicker and the mortgage is paid off in less time.

Consumer Credit Counseling of PR Inc. – not-for-profit organization that offers free services to consumers who are in a precarious economic situation, to help them evaluate and reorganize their resources and obligations, and if possible, establish payment plans with their creditors.

Co-applicant or co-debtor – person or legal entity that applies for a loan together with principal applicant and who is equally responsible for repaying the loan; should be co-owner of the property.

Conventional Mortgage Loan – mortgage loan that is not guaranteed by the FHA or the VA.

FHA (Federal Housing Administration) – federal agency that administer housing programs and guarantees mortgage loans.

Fannie Mae (FNMA – Federal National Mortgage Association) – corporation that is dedicated to purchasing conventional mortgage loans in the secondary market.

Freddie Mac (FHLMC – Federal Home Loan Mortgage Corporation) – corporation that is dedicated to purchasing conventional mortgage loans on the secondary market.

Foreclosures – legal proceedings that declare the debt due and demand total payment of loan balance. It is used by the creditor when the debtor does not meet its obligation of paying the loan or otherwise breaches the agreements set forth in the Note or Mortgage Deed. The debt is satisfied with the proceeds of the judicial sale (at auction) of the property used as security.

Ginnie Mae (GNMA – Government National Mortgage Association) – federal agency that is dedicated to purchasing mortgage loans guaranteed by FHA or VA in the secondary market.

LTV (“Loan-to-Value Ratio”) – ratio between the mortgage loan and the value of the property. It is calculated by dividing the amount of the loan by the sales price or the value of the appraisal, whichever is less.

MGIC (Mortgage Guarantee Insurance Corporation) – private company that backs conventional mortgage loans.

Mortgage Broker – the person that has received the broker license from the Financial Institutions Commission that allows him to serve as intermediary between those who are applying for a loan and the financial institutions. He has the authority to originate and manage the credit applications.

Mortgage Insurance – protects the creditor from losses in the event the debtor does not pay the debt.

Payment by Assignment of Property – voluntary delivery of the property to the creditor in exchange for paying off of the loan. It is a tool used by debtors to avoid mortgage foreclosures, collection actions or other legal actions.

Prepayment Penalty – clause in the note that establishes that the bank can charge you a penalty if the loan is paid off before a set date.

Primary Residence – residential property occupied by the owner of the property for most of the year.

Repayment Methods – mortgage loans can be repaid in different ways: 1) Fixed Interest Loan – under this method, the interest remains fixed for the life of the loan and the monthly payments are all the same; 2) Balloon Loan – this type of loan has a different repayment structure. The monthly payments are calculated based on one term while the loan is repaid based on a much shorter term. After this term, the client has the alternative of paying off the balance of the loan or renewing the loan under new financing terms. The advantage of this type of loan is that you will have lower monthly payments since it has a lower interest rate. FirstBank offers very attractive financing plans for this type of loan.

Rural Development (previously Farmers Home) – federal agency that backs mortgage loans to low income buyers and offers subsidies to those that qualify.

Sales Agreement – agreement between the buyer and the seller of a property where the price and the terms of the transaction are defined.

Second Home – residential property that that the owner physically occupies only part of the year and uses it for rest and recreation.

Transfer Clause (“Due-on-sale”) – clause present in certain mortgage contracts; establishing that a buyer is interested in acquiring the property that is guaranteeing the mortgage and assuming the debt. The prospective buyer needs to request the bank’s consent to realize the transaction. If he does not get consent, the bank may declare the debt expired and demand the payment of the balance to the original debtor.

VA (Department of Veterans Affairs) – federal agency that guarantees mortgage loans given to veterans or their widows, reservists and eligible members of the National Guard.