Some adjustable rate mortgages allow the interest rate to fluctuate independently of a
required minimum payment. If a borrower makes the minimum payment it may not cover all of
the interest that would normally be due at the current interest rate. In essence, the
borrower is deferring the interest payment, which is why this is called “deferred
interest.” The deferred interest is added to the balance of the loan and the loan
balance grows larger instead of smaller, which is called negative amortization.
no cash-out
A refinance transaction which is not intended to put cash in the hand of the borrower.
Instead, the new balance is caculated to cover the balance due on the current loan and any
costs associated with obtaining the new mortgage. Often referred to as a “rate and
term refinance.”
no-cost loan
Many lenders offer loans that you can obtain at “no cost.” You should
inquire whether this means there are no “lender” costs associated with the loan,
or if it also covers the other costs you would normally have in a purchase or refinance
transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording
fees, notary fees, and others. These are fees and costs which may be associated with
buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind
that, like a “no-point” loan, the interest rate will be higher than if you
obtain a loan that has costs associated with it.
A legal document that obligates a borrower to repay a mortgage loan at a stated
interest rate during a specified period of time.
note rate
The interest rate stated on a mortgage note.
no-points loan
Almost all lenders offer loans at “no points.” You will find the interest
rate on a “no points” loan is approximately a quarter percent higher than on a
loan where you pay one point.
notice of default
A formal written notice to a borrower that a default has occurred and that legal
action may be taken.