That portion of a borrower's monthly payments held by
the lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, and other items as they become due. Typically, a monthly
mortgage payment has four components: principal, interest, taxes and
insurance ("PITI"). The taxes and insurance portions represent property
taxes and homeowner's insurance premium, respectively. These are often
required by the lender to be included in a monthly payment since regular
and timely payment of both of these obligations improves the lender's
To insure; to secure against loss.
A published interest rate against which lenders measure
the difference between the current interest rate on an adjustable rate
mortgage and that earned by other investments (such as one, three, and
five year US Treasury security yields, the monthly average interest
rate on loans closed by saving and loan institutions, and the monthly
average cost-of-funds incurred by savings and loans), which is then
used to adjust the interest rate on an adjustable mortgage up or down.
Interest Rate Cap
A limit on the amount the interest rate can increase.
A periodic cap limits how much the rate can increase at each adjustment
period. A lifetime cap limits how much the rate can increase during
the term of the loan. Also called an interest rate ceiling.