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Glossary P
Payoff
The amount of money owed to the lender to completely pay off the loan. This includes, but is not limited to the principal balance, per diem interest, escrow shortages, outstanding late charges and legal fees.
Payoff Statement
See Demand.
Per Diem Interest
Interest calculated on a daily basis. At close of escrow, a borrower will be charged a certain number of days of per diem interest. If the loan is a purchase, they will pay from the closing date to the first day of the following month. If it is a refinance, the borrower will pay two sets of per diem interest: one amount for the days on the new loan as explained above, and the second, for the number of days from the last payment on the old loan to the closing date of the new loan. In other words, the last bit of interest on the old loan and the first bit of interest on the new loan. This is not double dipping on the part of the lenders. Every day you have a loan, you pay interest. And because of the way payments are paid and interest calculated, the ONLY way the old lender can obtain that last bit of interest owed to them is to include it in the new loan.
PITI
The 4 components of a mortgage payment: Principal, Interest, Taxes, and Insurance.
PMI
See Private Mortgage Insurance
Point
1% of the loan amount. Buyers pay points to lower the interest rate on a loan.
Pre-Approval
When purchasing a home, it’s wise to get pre-approved before even beginning the search. A pre-approval means you’ve applied for a loan and had it approved, subject to finding a property that qualifies. Your credit, income and employment have all been verified. Contrary to all of the advertising out there, you cannot get pre-approved over the telephone in minutes. You cannot get pre-approved without filling out an application, having your credit checked and your employment and income verified. Yes, there are some loans where your employment and income are not verified. But these “stated income” loans, or “no doc” loans still require a credit check and all the application paperwork signed.
Preliminary Title Report
After the title company researches the history, liens, etc on a property, they issue a Preliminary Title Report, stating the results of their research. This is issued to the lender, escrow and borrower for their review and approval.
Prepaid Interest
The first bit of interest on the new loan. The only way the lender can collect this interest is to include it in the new loan amount.
Prepaids
Property taxes, insurance and interest included in the loan and paid in advance at close of escrow.
Prepayment
Full or partial payment of the principal balance of a loan before its due date.
Prepayment Penalty
A fee charged by a lender if the loan is paid off earlier than the specified term of the loan.
Pre-qualification
Loan pre-qualification is the very first step in the home-buying process. This is nothing more than looking at your income and expenses and determining the amount of mortgage you are qualified to get. There is usually no credit check or verifications of income done at the pre-qualification stage. A lender or a Realtor can pre-qualify you. When purchasing a home, it is silly to even look at a home unless you know you would be qualified to purchase it.
Prime Rate
Interest rate charged by a bank on short term loans to its best commercial customers.
Principal
The balance of the loan, not counting any interest or fees.
Private Mortgage Insurance
Money paid to insure the mortgage when the downpayment is less than 20 percent of the appraised value. This protects the lender against loss should the borrower default on the loan.
Processing
The act of opening escrow, sending out verifications for employment, income and deposits and then compliing all of the required information into a file. The file is then sent to the underwriter for approval or denial.
Processing Fee
The fee a lender charges to process a loan.
Processor
The person hired by the lender to do the processing of loans.
Profit and Loss
A statement showing the income, expenses and profits of a business. A profit and loss is usually required for the self-employed borrower.
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Letter A