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| Payment Cap |
The maximum amount that your monthly loan payments can reach is referred to as your payment cap. This is intended to protect you from skyrocketing monthly mortgage payments if you have an adjustable rate mortgage. It is important to remember that loans with a payment cap may face a negative amortization if interest rates rise high enough that your monthly payment does not cover the cost of the loan's interest. In general, a rate cap is a better option than a payment cap. |
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| Payment Change Date |
When date when the interest rate of your adjustable rate mortgage or your graduated-payment adjustable-rate mortgage changes and the new payment amount takes effect. This date normally falls in the month immediately following your loan's adjustment date. |
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| Periodic Payment Rate Cap |
When you have an adjustable rate mortgage, the maximum amount that your monthly payments can go up or down during a single adjustment period is referred to as your periodic payment rate cap. A periodic payment rate cap may result in a negative amortization of your mortgage if interest rates were to rise to the point where your monthly mortgage payment were not enough to pay both the principal and interest required to fully amortize your loan. |
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| Permanent Loan |
This is a long-term loan of ten years or more that is often used for home construction financing. Permanent loans can cover the costs of construction and associated home-building costs. This type of loan is often referred to a "permanent financing" or an "end loan" and is generally between 10 to 30 years on residential properties. |
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| Piggy Back Loan |
When purchasing a home, you may opt to take out a second loan in order to pay a lower down payment and still avoid paying private mortgage insurance. This type of loan is referred to as a piggy back loan. Your first loan would be for 80 percent of the purchase price and the second loan would be for 10 to 15 percent of the purchase price, requiring you to only come up with a 5 to 10-percent down payment. The interest rate on the smaller, second loan is likely to be higher than the larger loan. |
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| PITI Reserves |
The amount of cash that you must have available after you make your down payment and pay all of the closing costs associated with your home purchase. PITI stands for principal, interest, taxes and insurance, and you will need cash reserves that are equal to the amount you would have to pay for these things for a set number of months (usually three months). |
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| Pledged Account Mortgage (PAM) |
With this type of mortgage, some of the funds that you bring to closing are put into an interest-bearing savings account. Money from this account will be gradually withdrawn and applied towards your mortgage, lowering your monthly mortgage payment. |
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| Points (Discount Points) |
The fee you pay up front to the lender at the time of closing. Each point you pay will equal one percent of your mortgage amount and for each point paid, your interest will normally drop by one-quarter of a percentage point. For example, if you are taking out a mortgage of $200,000 and were to pay 2 points at closing to get an interest reduction of ½ of a percent, you would need to pay $4,000 for those points. Costs like origination fees can also be expressed in points. |
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| Pre-Approved Loan |
A commitment from a lender that you are approved to purchase a home within the price range specified. If you want to be approved for a loan prior to choosing the home you would like to purchase, you will want to obtain a pre-approval. The lender will take down your employment, income and credit information and may provide you with a pre-approval based on that information. If you are pre-approved and you find the home that you would like to purchase, the home that you choose must also meet the lender's underwriting guidelines. |
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| Prearranged Refinancing Agreement |
When you have an agreement with your lender to refinance in the future according to special terms, it is referred to as a prearranged refinancing agreement. This type of arrangement is used by the lender as an incentive for you to arrange your current and future financing through them instead of going to one of their competitors. |
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| Preliminary Title Report |
A status document confirming ownership of a property and the existence or absence of liens or claims against the property. Prior to the closing on a sale of a house, a title search must be performed on the property that is being sold. |
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| Prepaid Expense Items |
At the time of the closing of the sale of a house or property, certain expenses and fees will need to be paid to cover the future cost of items like property taxes, mortgage insurance and hazard insurance. These items are referred to as prepaid expense items. The money to pay for these items will generally go into an escrow account and the escrow agent will pay the recurring costs out of this account as they become due. |
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| Preparation Charges |
When you purchase a vehicle from a dealership, the dealer incurs costs related to preparing the vehicle for delivery to you. These costs may be passed on to you in the form of preparation charges. These charges normally include items like adding fuel to the gas tank, servicing the vehicle, vacuuming the interior, washing and polishing the car, and other cosmetic changes that are made prior to the sale. |
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| Prepayment |
Money that is paid to your lender prior to the due date in order to reduce the balance of your loan is considered a prepayment. If your payment is made prior to the loan being fully amortized, it is considered prepayment, whether payment is from the sale of your home, prepayment in cash, or a foreclosure of your home. |
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| Prepayment Penalty |
A fee charged to a loan holder for paying off a loan prior to it being due. Not all loans will impose a prepayment penalty for paying off your loan early. If you are thinking of paying off your loan early, you will want to check with your lender as to whether or not this penalty would apply to you as the fee can be quite substantial. |
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| Pre-Qualification |
A non-binding opinion by a loan officer to help you determine how much money you can afford to spend on a home by analyzing your income, debt and savings information. Unlike a pre-approval, a pre-qualification does not indicate that your credit is good enough to be approved for a loan, it just means that your income is substantial enough and the amount of debt that you disclosed to the loan officer is low enough that you are able to afford a home within a specific price range. |
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| Prime Rate |
The interest rate that is charged by banks to A-credit clientele is referred to as the prime rate. Many financial institutions will use the prime rate as a guideline for determining what rates they assess to their credit cards and home equity loans. The prime rate usually changes according to the changes that the Federal Reserve makes in monetary policy. |
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| Principal Balance |
The amount of money that you still owe on your loan is referred to as your principal balance. A portion of your monthly mortgage payments will go towards reducing this balance. |
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| Principal, Interest, Taxes, and Insurance (PITI) |
If there is an escrow account associated with your mortgage, your mortgage payment is divided into four separate parts when you make your payment each month. One portion of your payment goes towards interest, one towards principal, one towards taxes, and another part towards insurance. This is referred to as PITI. If you have an interest only loan or your loan does not have an escrow or impound account associated with it, this term does not apply to your loan. |
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| Private Mortgage Insurance (PMI) |
Insurance meant to protect a lender from financial loss if a loan holder were to default on a home loan. If you do not put a down payment of at least 20 percent towards your home purchase, your lender will require you to purchase private mortgage insurance. Loans like FHA and VA loans will not require you to take out a loan from a private insurance company since these loans are insured by the government. |
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| Promissory Note |
A written agreement promising to pay back money back over a certain period of time and at a specific interest rate. This written agreement is referred to as your promissory note. This document secures your lender's interest in your property and guarantees your repayment of the loan. |
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| Purchase And Sale Agreement |
A document that outlines the terms and conditions of the sale of the property, including the sales price and any contingences. When you purchase or sell a property, you will need to sign a purchase and sale agreement. If you're purchasing a home, you will normally need to supply the seller with a deposit when signing this agreement. |
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