Cash Flow
The amount of cash derived over a certain period of time from an income producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc…).
Cap
A rate lock with an option to reduce the rate if market interest rates decline during the lock period.
Caps (interest)
Consumer safeguards, which limit the amount of change to the interest rate for an adjustable rate mortgage.
Cash Flow Option Loan
Also known as a Flexible Payment ARM, this is an adjustable rate mortgage with flexible payment options, monthly interest rate adjustments, and very low minimum payments in the early years. These types of mortgages carry a risk of very large payments in later years.
Cash-Out Refi
Refinancing a loan for an amount in excess of the balance on the old loan plus settlement costs. This allows the borrower to take “cash-out” of the transaction. This method of raising cash is usually an alternative option to taking out a home equity loan.
Cash-In Refi
As part of a refinance transaction, the paying down of the loan balance in order to reduce the loan-to-value ratio to qualify for a lower interest rate and/or reduced mortgage insurance premium.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. 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. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the mortgage amount.
Closing Costs
Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area, country and the lenders used.
COFI
Cost of funds index. One of the many interest rate indexes that are utilized to determine interest rate adjustments on an adjustable rate mortgage. With a COFI adjustable-rate mortgage the rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.
Collateral
Assets that are pledged as security or guarantee for the repayment of a loan.
Conforming Mortgage
A loan meeting the eligibility for purchase criteria of Fannie Mae and Freddie Mac, the two major Federal agencies that buy mortgages.
Construction Loan or Construction Financing
A short-term interim loan to pay for the construction of buildings or homes as opposed to purchasing completed structures. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Contract Knavery
The insertion of provisions into a loan contract severely placing the borrower at a disadvantage without their knowledge and at times irrespective of oral assurances to the contrary. Prepayment penalties rank among the most frequently cited subject of such abuse.
Contract Sale or Deed
A contract between a purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Loan
A home mortgage that is not insured by FHA or nor guaranteed by VA.
Conversion Clause
A provision in an ARM allowing the option for a loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may carry a higher rate or points than ARMs that do not have the option.
Correspondent
A lender who delivers loans to a wholesale lender (usually a larger entity) against prior price commitments the wholesaler has made to the correspondent. The commitment protects the correspondent against pipeline risk, the risk a lender takes when it makes a loan commitment at a certain interest rate, knowing that before the loan closes interest rates might increase.
COSI
Cost of savings index. Another of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.
Co-signing a note
Assuming responsibility for repayment of another person’s loan in the event of their default on payment.
Credit Report
A report from a credit bureau containing detailed information concerning a borrower’s credit-worthiness including credit history and current credit standing status.
Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer’s credit report that measures the individual’s credit worthiness. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
Cumulative Interest
The sum of all interest payments made to date or over the duration of the loan. As a measure of the cost of credit to the borrower it is an incomplete statistic as it does not include up-front cash payments nor is adjusted for the time value of money; the value of money with a given amount of interest earned or inflation accrued over a given amount of time.
Current Index Value
On an indexed ARM this is most recently published value of the index used to adjust the interest rate.
Current Projected Rate
The forecasted interest rate on an ARM at the next rate adjustment.
