Adjustable-Rate Mortgage (ARM): a mortgage with a variable interest rate, where payments or rates may adjust monthly, bi-annually, annually, or on some other basis.
Amortization: Paying off a loan over time in installments, including the amount applied towards interest and the amount toward principal each month.
Annual Percentage Rate (APR): the interest rate you pay on your mortgage, including loan fees, points, and other costs associated with the loan.
Appraisal: a report completed by an appraiser that determines the value of a given property.
Cap: a maximum figure that limits the amount or frequency an interest rate or payment can change on an adjustable-rate mortgage loan.
Certificate of Reasonable Value (CRV): an appraisal issued by the Veterans Administration (VA) that determines the value of a property. The loan amount may not exceed the CRV on a VA loan.
Closing: the final step in the loan process when loan documents are signed and become effective.
Conforming Loan: a loan that meets Fannie Mae and Freddie Mac guidelines, and is below a maximum loan amount.
Credit Report: a report used by a bank or lender to review your credit profile and your ability to carry and repay debt.
Debt-to-Income Ratio: the ratio of monthly liabilities and housing expenses divided by the gross monthly income of the applicant or borrower.
Delinquency: the failure to make a monthly debt or other payment on time.
Down Payment: an upfront payment to the seller of a property for a portion of the sales price. The sales price (sometimes plus closing costs) minus the down payment typically equals the mortgage loan amount.
Earnest Money: a deposit paid to the seller by the buyer as a pledge to complete the real estate transaction. If the seller accepts the offer, the deposit is typically held in escrow and applied to the down payment when the transaction is completed.
Equal Credit Opportunity Act: a federal law that prevents lenders from discriminating against applicants based on race, religion, national origin, sex, age, marital status or participation in public assistance programs.
Equity: the value of a property less any existing liens.
Escrow Agent: a third party intermediary who holds and allocates funds, including taxes and insurance in a mortgage transaction. Often, a substitute term for a closing or settlement agent.
Federal Home Loan Mortgage Corporation: one of the largest purchasers of conventional mortgages on the secondary market. Also known as Freddie Mac.
Federal National Mortgage Corporation: a publicly owned, government-sponsored corporation that purchases conventional mortgages on the secondary market. Also known as Fannie Mae.
FHA Loan: a federal government program that allows applicants to qualify for mortgages by providing loan insurance to mortgage holders as long as they fit certain criteria set forth by the Federal Housing Administration.
Fixed Rate Mortgage: a mortgage with an interest rate that does not change over time.
Hazard Insurance: insurance protecting a property owner and lender from damages caused by fire, severe weather, or other events.
Home Equity Line of Credit (HELOC): a loan that allows a borrower to obtain revolving credit (similar to how a credit card works) using their home as collateral.
Impound Account: oftentimes called an escrow account, an account established by the lender to collect and automatically pay a borrower’s property taxes and insurance premiums when payments are due.
Jumbo Loan: a loan amount above "conforming" or maximum loan limits that is set each year by Fannie Mae and Freddie Mac.
Lien: a claim against a property by a lender or other creditor to secure repayment of a debt, often in the form of a mortgage.
Loan-to-Value Ratio: the percentage of the appraised property value that is borrowed from a lender. For example, a loan of $80,000 on the property that is appraised at $100,000 would have a loan-to-value ratio of 80%.
Margin: an amount specified by the lender which, when added to the accompanying mortgage index, sets the interest rate for an adjustable-rate mortgage.
Mortgage or Deed of Trust: a pledge of property or security instrument given by an applicant or borrower to a lender, recorded in public records as a lien on the subject real estate.
Mortgage Discount Points: amount paid by borrowers at closing to reduce the interest rate on a home loan.
Mortgage Professional: a professional trained to guide applicants through the mortgage loan process.
Mortgagee: the mortgage lender.
Mortgagor: the borrower or homeowner.
Note: a written promise to repay the loan amount plus interest upon the specified terms and provisions.
Origination Fee: a percentage of the loan amount charged by the lender or mortgage broker for completing the loan process and for having the lender grant the borrower a loan.
PITI: the monthly housing expense, expressed as principal, interest, taxes, and insurance.
Prepayment Fee: a fee charged by the lender if a loan including a prepayment fee provision is refinanced or repaid prior to a specified date as agreed upon in the loan documents.
Prequalification: the process of providing financial and other information (such as employment history) by a prospective borrower in order for the lender to determine the loan amount the borrower may qualify for to purchase a home.
Prime Rate: the lowest rate of interest on bank loans at a given time and place, offered to preferred borrowers. Also called prime interest rate.
Principal: the balance of the outstanding debt, not including interest.
Private Mortgage Insurance: required insurance on a mortgage if the down payment is less than a specified amount (typically 20% on a conventional loan).
Refinance: the act of replacing your existing loan(s) with a new loan on the same property.
Right of Rescission: a federal law which allows a homeowner to rescind or cancel a contract to refinance their primary residence within three days of signing loan documents.
Short Refinance: a cross between a short sale and a rate and term refinance, in which an old loan is replaced with a new one, but with a lower loan balance.
Short Sale: the sale of a property for less than the amount of the mortgage balance as a means for a mortgage lender to reduce its losses.
VA Mortgage: a mortgage loan guaranteed by the Veterans Administration providing veterans and/or their surviving spouses with a federally guaranteed loan, often without a down payment requirement.