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Important Economic Terms


Adjustable-rate Mortgage (ARM): A  mortgage loan with a fluctuating interest rate directly influenced by the current market rate.

Amortization: Term referring to the scheduled paying off of a home equity loan.  It is spread over the lifetime of the loan.

Average 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 Friday.

Basis 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.

Cash-out Refi: 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.

Employment (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 monitored economic 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.

Federal Funds 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.

Freddie Mac: See Fannie Mae above.

Gross 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.

House 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.

Housing Starts: A monthly tally of the amount of residential construction sites.  The values are disclosed two weeks into the month, representing the prior month.

Jumbo Mortgage Loan: 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.

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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.

New 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 month.  

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 year.

Securitization: The pooling of home equity loans into a mortgage-backed security.

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.

Unemployment Rate: 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

Home Equity Loan Refinancing Economic Terms & Definitions
Home Equity Loan Refinancing Refinance Mortgage 101
Home Equity Loan Refinancing Refinance Options
Home Equity Loan Refinancing Refinancing? Save $$ On Title Insurance
Home Equity Loan Refinancing Should You Refinance?
Home Equity Loan Refinancing When to Refinance?
Home Equity Loan Refinancing Step 1: Making a Decision
Home Equity Loan Refinancing Step 2: Be Prepared
Home Equity Loan Refinancing Step 3: Loan Choices


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