Glossary of Mortgage Terms

Adjustable Rate Mortgage (ARM) – Mortgages with an interest rate that is adjusted periodically depending on a specified financial index.

Annual Percentage Rate (APR) – The actual finance charge for a loan, including points and loan fees in addition to the stated interest fee.

Appraisal – an opinion of the value or worth of a property on which mortgages are normally based.

Assessed Value – Value assigned to property by a local government for tax purposes. (This does not determine the appraised value for a mortgage loan.)

Balloon Payment – A principal payment due all at once at the end of some loan terms.

Closing – In real estate sales, the final procedure in which documents are executed and/or recorded and the sale 9or loan) is completed.

Closing Costs – The charges made by the lender and third parties for the services of originating and closing a mortgage for the borrower.

Condominium – A form of joint ownership and control of property in which specified air space (inside dwelling) is owned individually while the common elements of the building (outside walls) are jointly owned.

Cooperative – A form of ownership under which a building is owned by a corporation whose stockholders are entitled to lease a specific unit in the building.

Conventional Mortgage – A type of mortgage not insured by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Deed – Legal document that formally conveys ownership of property from seller to buyer.

Down Payment – Percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.

Earnest Money – Funds submitted with an offer to show “good faith” to follow through with the purchase. Earnest money is place by the broker in an escrow/trust account until closing, when it becomes part of the down payment or closing costs.

Equity – The value of your home after the outstanding balance of any loans are subtracted.

Escrow – a special account set up in which your funds are held to pay for taxes and insurance. “Escrow” can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

FHA – The Federal Housing Administration is a department within the Department of Housing and Urban Development that provides an insurance program for single and multi-family mortgages.

FNMA – Federal National Mortgage Association (“fannie mae”)

Finance Charge – The total cost, including all fees, points, and interest payments a borrower pays to obtain credit.

Fixed-rate Mortgage – A mortgage with an interest rate that stays the same (fixed) for the life of the mortgage.

Homeowners Insurance – Insurance that protects the homeowner from “casualty” (losses or damage to the home or personal property) and from “liability” (damages to other people or property). Also referred to as hazard insurance.

Interest – The sum paid to lender for money borrowed.

Mortgage – Document which gives lender an interest in real property until the debt is paid.

Origination Fee – The fee earned by a lender to process and close a loan; usually part of the closing costs.

PITI – principal, interest, taxes, and insurance - which generally comprise the total monthly payment on a loan.

Points – Prepaid interest on your mortgage, charged by the lender at the time of the closing. Each point is one percent of the loan amount – i.e. 2 points on a $100,000 mortgage would be $2,000.

Prepaids – The fees that the lender requires to be collected at closing which may include amounts for real estate taxes, and interest from the day of closing to the end of the month in which the closing occurs.

Principal – The amount borrower not including interest.

Private Mortgage Insurance (PMI) – An insurance policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required if you make a down payment that is below 20% of the appraised value

RESPA (Real Estate Settlement Procedures Act) Statement – A precise breakdown of closing costs for both sellers and buyers. Sometimes referred to as the HUD-1 Statement.

Title – Document that indicates ownership of a specific property.

Title Insurance – Protects against loss from defects in the title.