Important Economic Terms
Adjustable-rate Mortgage (ARM): A mortgage loan with a
fluctuating interest rate directly influenced by the current market
Amortization: Term referring to the scheduled paying off of a
home equity loan. It is spread over the lifetime of the loan.
Hourly Earnings: A monthly statistic calculated by The Bureau of Labor
Statistics, pertaining to the hourly wages of workers in the private sector.
Salaried employees and most supervisor positions are not calculated
into the value. It is published every month on the first
Point: A point system used primarily for home equity loan rates.
Each basis point equals one-hundredth of a percentage point.
I.e. The difference between a home equity loan rate of 5.55% and
5.59% is 4 basis points.
The refinancing of a home mortgage in which the new borrowed
amount surpasses the remaining amount of the original mortgage by at
least 5%. This is also known as pulling equity from the home. 80% of
home equity loan refinancing is done as cash-out refis.
Conforming Mortgage Loan: A home equity loan priced lower than Fannie Mae and Freddie Mac
publish they can purchase and/or
securitize in the secondary home loan market.
Consumer Confidence Index: The level of certainty that
households have in the economy. This is disclosed by the Conference
Board in the later part of each month.
Consumer Price Index (CPI): A measurement of the average
fluctuation in prices paid by fixed market consumers of a
wide variety of goods and services. The
CPI figure reflects the average change in the prices paid by urban
consumers. The CPI is not a "cost of living" index
since its fixed market sector
does not permit the substitution of goods and services due to
price fluctuations. The CPI is released by the Bureau of Labor Statistics
in mid-month for the previous month.
Conventional Mortgage Loan: A home equity loan that government
does not insure or endorse.
(Payroll): Amount of non-farm employees on the
payrolls of more than 500 private and public industries. Typically
issued on the first Friday of the month for the previous month by
the Bureau of Labor Statistics, it is one of the most highly
indicators in financial markets.
Employment Cost Index: A quarterly index that measures changes in the cost of civilian labor.
Opposed to the average hourly
earning measure, the ECI includes salaried workers in calculating
its values. It uses fixed employment weights, which only
reflect changes in same job employment costs - Rather than being
affected by surges in low and high paying jobs.
Existing Home Sales: The value given to the number of closings
made in a particular month. It is influenced by the home equity loan rates
of a few months earlier than the current home equity loan rate. Data are released by the National Association
of REALTORS® on the 25th of each month.
Fannie Mae and
Freddie Mac: America's two federally chartered and
stockholder-owned mortgage finance companies. They specialize in purchasing and/or securitizing
home equity loans made by others.
Rate: The rate banks charge each other on overnight loan
transactions made between
them. These loans are generally made so that bank can cover their
daily cash flow and reserve requirements. With a rise in the rate, banks
have a prerogative to keep more of their own cash on hand, meaning
that less money is accessible to borrowers.
Federal Open Market Committee
(FOMC): The arm of the Federal Reserve that sets
monetary policy, the FOMC is scheduled to meet eight times a year.
The 12 members of the FOMC include the seven governors of the
Federal Reserve System, the president of the New York Federal
Reserve Bank, and, on a rotating basis, four of the presidents of
the other 11 regional Federal Reserve Banks.
Fixed-rate Mortgage (FRM): A home equity loan that has a fixed
interest rate for its lifetime.
Mac: See Fannie Mae above.
Domestic Product (GDP): Value given to the total of goods
and services produced in the U.S. over a particular time period.
It is available near the end of the first month following the
closing of a quarter. GDP figures prior to
adjustment for inflation are called nominal GDP.
Homeownership Rate: The amount of homes in which the residents
live in their own home divided by the total amount of homes.
It is released late in the month at the end of a quarter. It
is also founded on quarterly statistics.
Price Index: A reflection of the price changes in
single-family homes. It is a repeat sales index, meaning that
it calculates average price changes on the same properties that have
been refinanced or sold again. It is likewise associated with mortgages
bought by Fannie Mae and Freddie Mac.
Starts: A monthly tally of the amount of residential
construction sites. The values are disclosed two weeks into
the month, representing the prior month.
A home equity loan in excess of the
Fannie Mae and Freddie Mac loan limit. These loans come with
higher than normal interest rates - usually around .25 % higher.
Loan-to-value Ratio (LTV): This is the amount of a home equity
loan in comparison to the actual value of the property in question.
A 90% LTV translates that the home equity loan is worth 90% of the
appraised property value. The remaining 10% is made as a down
payment by the borrower.
Mean Home Price: The
overall mean value of sold households during a set time period.
The mean price of bought households is normally higher than the median
price due to the increasing number of extremely high-priced homes
nowadays. Existing home sales are disclosed on the 25th of
every month, while new home sales are disclosed shortly thereafter.
Median Home Price:
This is the value that divides in half the higher selling homes from
the lower selling homes. In other words, the median home price
divides all the sold homes of a time period into two categories:
Those home that sold for more than the median price, and those homes
that sold for less than the median price. It is a great
indicator of home buying trends and is disclosed on the 25th of
every month for the prior month.
back to top
Mortgage Application Index: Purchase: A weekly index
disclosing the amount of home purchase applications. It is published
every Wednesday for the prior week.
Mortgage Application Index: Refinance: A weekly index
disclosing the amount of home refinancing applications. It is
published every Wednesday for the prior week.
Home Sales: The Census Bureau surveys contractors throughout the
nation and correlates this figure on the amount of new home
contracts. It is a yearly figure adjusted seasonally.
Producer Price Index (PPI): A reliable indicator of inflation,
the PPI reflects changes in the selling prices of goods and services
sold by local merchants. It is most often quoted for the
selling prices of goods ready to be sold to the user, rather than to
middle-men - also known as finished goods. The difference
between the PPI and the CPI is that the PPI includes factors like
government subsidies, distribution fees, sales taxes, and the type
of product. It is disclosed every month for the previous
Productivity: Probably the most crucial intimation of the
economy's long term health. A difficult value to gauge, it is
the measurement of economical output per hour. It is
calculated quarterly and is disclosed eight times throughout the
Securitization: The pooling of home equity loans into a
Underwriting: An analysis of the risk a lender takes when
approving a mortgage loan. Factors such as property value and
the borrowers capacity to pay the loan back are considered.
The value percentage of the work force without a job. To be
designated as a
member of the work force, an individual must either have a job or
be actively looking for one. Even those individuals who do not
have jobs, but are looking for one, are considered employed.
The statistic is disclosed each month for the prior month.
Home Equity Loan Refinancing Guide