First Hawaiian Bank

Glossary

Adjustable Rate Mortgage (ARM)

A mortgage loan with an interest rate that adjusts periodically throughout the term of the loan.

Amortization

The gradual repayment of a financial obligation on an installment basis such that at the end of the given loan term, a specified balance is paid.

Annual Percentage Rate (APR)

The total cost of credit expressed as a simple annual percentage.

Appraisal

A formal evaluation of property value set by a property appraiser.

Appreciation

An increase in the value of property over time due to changes in market conditions or other causes such as inflation, increased demand or even condition of the property.

Balance Sheet

A dated financial statement that shows an individual’s assets, liabilities and net worth.

Balloon Loan

A loan which results in a lump sum amount due and payable upon maturity.

Balloon Payment

The lump sum amount due and payable upon maturity.

Basis Point

An amount equal to 1/100th of a percentage point.  E.g., a fee calculated at 25 basis points of $200,000 would be 0.25% or $500.

Broker

A third party who is normally licensed by the state and who helps arrange funding or negotiates a contract between parties, but does not lend the money himself or herself.

Cap

A limit on how much an adjustable rate mortgage (ARM) can increase or decrease, which protects the borrower from large increases in the interest rate or monthly payment.

Closing Cost

The expense of either obtaining a mortgage loan or transferring real estate from a seller to a buyer, including lawyer's fees, survey charges, title searches & insurance, and recording fees.

Commission

The fee charged by a broker or agent for negotiating a real estate of loan transaction.  A broker commission is generally a percentage of the price of the property or loan.

Condominium or Condo

A real estate project with many housing units where each unit owner has title to a unit with undivided interest in the common areas and facilities of the project.

Construction Loan

A mortgage loan made for the purpose of building a new home or remodeling an existing one.

Credit History

A record of an individual’s debts and payment habits which helps a lender determine whether a potential borrower is likely to repay a loan in a timely manner.

Debt To Service Ratio

Monthly expenses divided by monthly income.

Depreciation

A decline in the value of property due to physical or economic changes such as wear and tear or any other reason; the opposite of appreciation.

Discount Points

Amounts paid to the lender in conjunction with a mortgage loan to lower the interest rate.  One discount point equals one percentage point of the loan amount.

Discounted Rate

A rate of interest that is reduced during the initial period of the loan. In the case of adjustable rate mortgages (ARMs), it is the initial interest rate that is lower than the sum of the index rate plus the margin.

Down Payment

The initial amount of funds provided by a buyer to a seller in a purchase transaction. Often, based on a percentage of the total purchase price.

ECOA

Equal Credit Opportunity Act is the legislation that prevents discrimination during the process of granting credit. The law prevents discrimination on the basis of race, color, religion, national origin, sex, marital status, equal rights, age, the use of public assistance programs and the exercise of rights under consumer protection laws.

Encroachment

An improvement that physically intrudes or trespasses on another’s property.

Encumbrance

Anything that affects or limits the title to a property, such as mortgages, leases, easements, deeds or restrictions.

Equity

The difference between the value of a property and any loans or claims outstanding.

Escrow

The amount deposited with a neutral third-party, called an escrow agent, who holds the borrower’s escrow payments to disburse and distribute monies to proper parties involved in a real estate transaction.

Escrow Analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay insurance, property taxes and other bills when due.

ERS Loan

Employee Retirement System loans are special funds at certain fixed rates offered to State employees.

Fair Credit Reporting Act (FCRA)

A consumer protection law passed by Congress that regulates the disclosure and use of consumer credit information, establishes the rules for credit reporting agencies and establishes procedures for a consumer to view his or her own credit report and correct mistakes on it.

Fannie Mae (Federal National Mortgage Association FNMA)

A government sponsored enterprise and the largest non-bank financial services company which buys and securitizes mortgages for resale in the secondary market.

Fee Purchase Loan

A mortgage loan made for the purpose of buying the fee simple title on a leasehold property.

Fee Simple Property

Property owner has complete ownership of the property and has the right to occupy it forever.

Fixed Rate Mortgage

A mortgage with an interest rate that is fixed over the term of the loan.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A government sponsored agency within the Department of Housing and Urban Development (HUD) which insures residential mortgage loans made by private lenders and sets standards for mortgage loan underwriting.

Homeowner’s Insurance

Insurance coverage that protects your home against fire and other catastrophes and hazards, and compensates for the resulting physical damages.

Hula Mae Loan

A mortgage loan program sponsored by the state, with preferred pricing and fee discounts geared for Hawaii residents buying a primary residence for the first time.

Index

A measurement (e.g. 1-year Treasury Bill) that is used when calculating the new rate of interest on an adjustable rate mortgage.

Interest

The dollar amount paid to borrow money.

Interest Rate

The cost of borrowing money, expressed as a percentage, usually over a period of one year.

Investor Loan

A loan made for property which is used as an investment where the borrower sometimes receives rental income, or may look for price appreciation to profit from.

Jumbo Loan

A mortgage loan that exceeds the standard secondary market borrowing limit.

Land Loan

A mortgage loan made for the purpose of buying a vacant lot, or refinancing an existing loan secured by the vacant lot.

Leasehold Property

Real property whereby the owner has the right to occupy a property for a fixed period of time.

Lien

A legal claim against a property that typically must be paid when the property is sold.

Lifetime Cap

The maximum percentage points that a loan's interest rate can increase by during the entire life of the loan.

Loan-to-Value (LTV) Ratio

The principal balance of the total mortgage loans divided by the property's estimated value. Usually expressed as a percentage. (i.e., 80%)

Lock-in

The amount of time prior to the closing of a mortgage loan program that guarantees the specific interest rate and points.

Margin

The set percentage points the lender adds to the index rate when adjusting an interest rate on an adjustable rate mortgage.

Maturity

The end of the term of a loan.

Mortgage

The legal document which pledges real property as security for the repayment of a loan. The pledge ends and the mortgage is satisfied, when the loan is paid-in-full.

Mortgagee

The lender in a mortgage agreement.

Mortgage Insurance

Insurance that protects the lender against loss caused by a borrower’s default on a mortgage loan.  Depending on the type of mortgage insurance, the insurance may cover a percentage of the mortgage loan.

Mortgagor

The borrower in a mortgage agreement.

Multi-Family Residence

A residential property with two to four individual housing units (duplex, triplex, quadplex.)

Negative Amortization

An increase in the outstanding mortgage balance when the monthly mortgage payments do not cover all the interest due on the loan.  The unpaid interest is added to the remaining balance to create “negative” amortization.

Occupancy

This describes whether a borrower will be residing in a property as an owner occupant, or maintaining the loan as an Investor, or using the property as a second home.

P & I

Principal & Interest

PITI

Principal, Interest, Taxes & Insurance

Points

An upfront fee charged by the lender, separate from interest but designed to increase the overall yield to the lender. Usually expressed as a percentage, and calculated based on the loan amount.

Portfolio Loan

A mortgage loan which is approved by First Hawaiian Bank under the bank's own terms and conditions. Generally the loan is not sold to another institution, and therefore FHB bears the risks of repayment and interest.

Prepayment Penalty

A fee that may be assessed by some lenders as a penalty if a loan is paid off before it is due.

Principal

The balance of a loan, separate from interest or add-on charges.

Private Mortgage Insurance (PMI)

An insurance that can be secured by a lender on behalf of a borrower to protect the lender in the event of the borrower's default.

Purchase Loan

A mortgage loan made for the purpose of financing a real estate purchase.

Rate Adjustment Cap

The maximum percentage points that a loan's interest rate can increase by during any adjustment period throughout the life of the loan.

Rate Lock

The borrower's ability to guarantee a specific rate of interest currently offered by the lender, for a given period of time. (e.g. 60-day rate lock) Used frequently in a rising rate market. See lock-in.

Recording

Noting of a legal document affecting title to real property such as a deed or mortgage in a book of public record.

Refinance Loan

A mortgage loan made for the purpose of paying off an existing mortgage loan on property. Generally, done to reduce the loan's rate of interest, or to acquire additional cash against the equity in one's property.

RESPA

Real Estate Settlement Procedures Act among other things, requires the bank to provide certain notices to borrowers regarding estimated closing costs within 3 days of the date of application.

Second Mortgage

A mortgage loan which maintains the second lien position against the title of one's property.

Security Interest

The legal right to legal property an owner gives to the lender as collateral for repayment of a debt if the borrower defaults.

Single Family Residence

A residential structure designed to include one dwelling that shares no common ground with neighboring properties.

Title

A legal document that evidences ownership in property.

Title Insurance

Insurance that protects the lender (lender’s policy) or the buyer (buyer’s policy) against loss or defects that affect the ownership of the property.

Title Search

An examination of title records to ensure that the seller is the legal owner of the property and there are no liens or encumbrances on the property.

Truth-In-Lending Law

The legislation requiring that lenders must properly disclose to borrowers the true cost of loans and make the interest rate and terms of the loan simple to understand.

Variable Rate

An interest rate that may change periodically, often in relation to an index.  Payments may increase or decrease accordingly.

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