Mortgage and Real Estate Glossary Terms – Letters O & P

O Terms

OBSOLESCENCE – loss of value resulting from outmoded physical features, technical advances or economic influences.

OFF-SITE IMPROVEMENTS – improvements outside the boundaries of a property that enhance its value such as sidewalks, streets, curbs and gutters.

ON-SITE IMPROVEMENTS – any construction of buildings or other improvements within the boundaries of a property that increase its value.

ORDINARY INCOME – income subject to tax at full or ordinary rates, rather than a capital gains rate.

ORIGINATION – marketing and attracting, then securing a completed mortgage loan application from a commercial or residential borrower.

ORIGINATION FEES – the fee charged by a banker/lender (sometimes called “points”) to make the funds available to you, an off-set of its marketing and overhead expenses.

P Terms

PAR – a price of 100 percent of face value

PARTIAL PAYMENT – in loan collection, receipt of less than the full payment due.

PARTNERSHIP – a business association of two or more owners who share in the profits and losses of the business. Partners are jointly and severally liable for the debts of the business enterprise.

PARTY WALL – a wall built on a line between two adjoining properties and common to both owners.

PAYMENT SHOCK – a scenario in which monthly mortgage payments on an adjustable rate mortgage (ARM) rise so high that the borrower may not be able to afford the payments. Many consumer protection guidelines regarding extremely low initial “teaser” rates, lifetime ceilings, and annual caps are designed to prevent payment shock.

PAYOFF FIGURES – the unpaid principal balance, plus any negative escrow amounts, plus accrued and unpaid interest, late charges, prepayment penalties, and other possible fees, to be used for payment in full of a mortgage or other lien.

PERMANENT FINANCING – a mortgage loan usually covering development costs, interim loans, construction loans, home financing expenses, that is put in place when the property is completed.

PERSONAL PROPERTY – any property that is not real property (dirt).

PHYSICAL DEPRECIATION – decline in the value of a physical asset or real property, resulting from normal usage, age, wear and tear, disintegration or action of the elements. Depreciation can be curable or incurable sometimes.

PIGGY-BACK LOAN – the combination of both a first and second mortgage being recorded concurrently on a single piece of property. A single mortgage lender may originate both loans, or the loans may be originated by two different lenders. In either event, the two loans are recorded by priority.

PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) – the four components that (for most homeowners) are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.

POINTS (LOAN DISCOUNT POINTS) – prepaid interest on a mortgage that is usually paid at the time of closing. Each “point” is equal to one percent of the total amount of a mortgage (one point on an $80,000 mortgage is $800, or 1 percent of 80,000). Most lenders offer mortgages with several combinations of points and interest rates. Generally, the lower the interest rate, the more points you will pay at settlement, and the shorter the loans term will be. Don’t mix-up “points” and “closing costs” in your mind (** SEE GOOD FAITH ESTIMATE **).

POINTS (typically charged) – the residential FIRST MORTGAGE market today for ‘conforming’ applicants is in the zero to two, two and a half point range. ‘Non-conforming’ customers (about 60% of everybody else) are charged generally one to three points, while SECOND MORTGAGES are often in the two to five point range at most home equity specialty companies, especially when the typical customer today is looking for higher Combined LTV’s (CLTV).

PORTFOLIO LENDER – a funding source who holds loans in their own portfolio and does not sell them to investors in the secondary market. These lender/funding sources usually hold the loans until their maturity, or until the loan is paid off.

PRE-APPROVAL OR PRE-QUALIFICATION (pre-qual) – an early assurance by a lender/loan banker that you appear to meet the requirements for a specific type of loan. Unless subsequent supporting documentation doesn’t adequately confirm the initial supplied information, “pre-quals” rarely change.

PRELIMINARY TITLE SEARCH – a real property title search a title insurance company conducts prior to issuance of a title binder or commitment to insure.

PREPAID ITEMS – costs paid at closing for taxes, interest, and insurance. Because prepaid items are recurring costs that do not relate to the acquisition of the real property itself, they cannot be financed.

PREPAID INTEREST – mortgage loan interest that is paid in advance of when it is due to obtain tax advantages, or as required by a lender at closing for the odd days between he loan closing date and 30 days prior to the first scheduled payment due date.

PREPAYMENT – the payment of all or part of a mortgage debt before it is due.

PRE-PAYMENT PENALTY – a charge the mortgagor pays the mortgagee, for the privilege to prepay the loan.

PRE-QUALIFICATION – evaluation of a potential borrower’s financial status, and other characteristics, to determine the size and type of mortgage which is likely available to him or her.

PRIME RATE – the interest rate commercial banks typically charge their most creditworthy commercial customers for short-term loans. “Prime” is a yardstick for trends in interest rates, and it is often a baseline for establishing interest rates on higher-risk loans. Each bank sets its own separate “prime rate.” It does NOT directly affect mortgage rates like you think it might!

PRIMARY RESIDENCE – the residence which the owner physically occupies and uses as his or her home.

PRINCIPAL- the original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest.

PRIVATE MORTGAGE INSURANCE (pmi) – a policy of insurance issued by an insurance company protecting the mortgage lender against financial loss, in the event of a borrower default on a mortgage loan. Borrower pays the premium, the lender is the beneficiary of the insurance policy (it’s like the insurance company is the co-signer/guarantor on the loan).

PRORATE – the allocation of proportionate shares of income, ownership or of an obligation which a buyer and seller share at the time of closing of a purchase transaction.

PROMISSORY NOTE – a written promise to pay a specific amount at a specified time.

PUD (Planned Unit Development) – a comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, commercial office and industrial areas. Also, a subdivision having lots of areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.

PURCHASE AGREEMENT – a written agreement/contract as between a buyer and a seller of real property setting forth the price and the other terms of the sale.