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Par
Mortgage Rate: The face value of a rate with no points charged or credited.
Stock Price: The face value of a stock or bond. Also called par value.
Payment
The periodic payment due on a mortgage loan each payment period (normally a month) to cover accrued interest and to repay a portion of the principal balance. Most mortgages are set up where the payments will reduce the principal balance a little with each payment until the balance is zero when the last payment is made.
Payment Cap
Limit on the amount by which a borrower's adjustable rate mortgage payments may increase, regardless of rise in interest rates. May result in negative amortization.
Per Diem Interest
Interest calculated per day. Depending on the day of the month on which closing takes place, borrower pays interest from the date of closing to the end of the month. The first mortgage payment of a loan is generally due the first of the following month.
Periodic Interest Rate Cap
A limit on the amount that interest rates can change at each adjustment period.
Permanent Loan
A long term mortgage of ten years or more.
PITI
This abbreviation stands for principal, interest, tax, insurance. It is a common term to describe the payment one makes on a mortgage, when that payment includes taxes and insurance.
PITI
Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment, also called Monthly Housing Expenses.
Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account. This fund, plus earned interest, is used to gradually reduce mortgage payments.
Points
Charges connected with getting a mortgage. Each point is equal to 1% of the mortgage amount. Points paid on a mortgage to buy or improve your principal residence are generally fully deductible in the year you pay them. Points paid to refinance a principal home or buy any other property must be deducted over the life of the loan.
Points (or Discount Points)
Money paid to a lender at closing in exchange for a lower interest rate. Each point is equal to 1% of the loan amount.
Prepayment penalty
Prepayment penalties are those charges which a lender imposes if you wish to pay off your loan early. The loans which will carry a prepayment penalty often penalize you only for paying off the loan early in the first five years, and thereafter a graduating scale may apply, or there may be no prepayment penalty at all after that initial five year period.
Present value of money
Present Value and Future of Money
The future value of money is the value that your money will have after it has compounded at some interest rate for a period of time. If you put $100 in the bank now at 3% interest rate compounded annually, its future value is $103. Conversely, the present value of the $103 that you will have in one year is presently $100 if it compounds annually at 3% interest. Future and present values are essential when comparing values of money now and its worth in the future. For example, you may have a lottery in your state. You might know that the next prize amount is worth $1,000,000. What is not said many times is that this is $1,000,000 future value. That is, you will likely not receive $1,000,000 cash (less income tax, of course) if you were to be the sole winner. Instead you will probably receive a considerably reduced sum of money, that if invested at prevailing rates, will be worth $1,000,000 in 20 years. Let us say the prevailing rate is 5% compounded annually. If you receive $376,500 and deposit into this account you will have $998,966 after 20 years. So the future value of $376,000 is nearly $1M! Conversely, the present value of $1,000,000 twenty years from now is $376,000 now.
Principal
The principal amount of the loan is the amount still owed on the loan. When you first obtain a loan, the principal is the amount borrowed. As you make payments, only a portion of each payment is applied to the principal; the rest is applied to interest, and property tax and insurance if those are included in your payment. You may also be paying for taxes and insurance if you are payment is set up that way. The principal amount for a fixed-interest rate mortgage typically decreases slowly at first, with most of the payment being applied to the interest. As time goes on, the principal gradually received more of the payment since less of the payment is applied to the interest.