Glossary of Mortgage Terms: To help consumers better understand the components comprised within a mortgage package, the following definitions can prove most beneficial.

ADJUSTABLE RATE MORTGAGE (ARM) – A mortgage which allows for the interest rate to be adjusted periodically based on market factors. Also known as a VARIABLE RATE MORTGAGE.

ANNUAL PERCENTAGE RATE (APR) – The term refers to the true cost of a loan including interest and fees calculated on a yearly basis. Since all lenders must follow the same formula to determine the APR this is a convenient way for consumers to compare loans.

APPRAISAL – An estimate of the value of a property based on the judgment of a licensed appraiser.

BALLOON PAYMENT – A final (often times large) payment that is required to pay off a loan.

CLOSING COSTS – Added costs such as appraisal, loan origination fees, title insurance, escrow fees and other reasonable and usual fees that are generally shared equally by buyer and seller when a loan “closes.”

CREDIT REPORT – A report detailing the credit score of the buyer of a property. The credit score in the credit report can affect the interest rate that the borrower will have to pay for a loan or it could result in the loan being turned down.

DOWN PAYMENT – A payment made by the buyer of a property which makes up the difference between the purchase price of the property and the amount that the lender is willing to finance.

EQUITY – The difference between the appraised value of a property and the amount owed on the property.

FIXED RATE MORTGAGE – A mortgage in which the interest rate remains the same for the life of the loan.

Debt-to-Income Ratio
The difference between your debt and income each month that plays into the overall credit score of a person.

Home Equity Line of Credit
Credit that you can borrow on based on the equity you have established in your home.

Loan Term
Defined this term indicates the amount of time that you pay on a loan.

Rate Adjustment Period
The time in an adjusted rate mortgage that your monthly payments vary based on the changes in the market and subsequently, changes in rates.

POINTS – a Point is one percent of the value of the loan. Points are prepaid interest. By paying additional points a borrower can lower the interest rate of his loan.

REFINANCE – To replace one loan with another loan – generally to replace a high-interest loan with a lower-interest loan in order to lower the monthly interest payment.

TITLE SEARCH – Act of searching public records to determine the legal owner of a property. A title search is generally conducted by a title company when a property is in escrow.

REFINANCING: Refinancing simply involves replacing one loan with another. Generally you wish to replace a high-interest loan with a new loan at a lower interest rate in order to reduce the monthly payments on the loan. However, when a homeowner takes cash out of a mortgage refinance there is often no reduction in monthly payment and may actually be an increase.

EQUITY – The difference between how much you own on a property and the current value of the property.

FIXED-RATE LOAN – A mortgage loan whose interest rate does not change over the length of the loan. This type of loan provides you with a level payment for the life of the loan, with no changes in payment amount from month to month.

ADJUSTABLE-RATE MORTGAGE (ARM) – (Also called a Variable-Rate Mortgage) – Type of mortgage wherein the interest rate can change at set intervals depending on existing market conditions. The monthly payment on an ARM can change over time, either up or down.

APR (Annual Percentage Rate) – This acronym refers to the total yearly interest amount on a loan broken down into smaller payment sums, generally 12 per year.

DEBT CONSOLIDATION – A loan designed to pay off a number of smaller loans. Generally the new loan is at a lower rate of interest than the average of the smaller loans resulting in a lower monthly payment.

NO CLOSING COST LOAN – A loan that requires no out-of-pocket loan fees or other charges. The name is somewhat misleading since closing costs are either added into the loan amount or a higher interest rate is charged to pay for the loan costs – in either case you still pay closing costs.

SECOND MORTGAGE (Also called an EQUITY LOAN) – Type of mortgage under which the collateral value is determined based upon the equity in a property. The second mortgage is subordinate to the first mortgage.

EQUITY LINE OF CREDIT – A revolving line of credit based on the equity in a property. The money in your equity line of credit is generally accessed by writing checks against the total amount of the loan – interest is only paid on the amount of the loan you actually use and not the total amount you are approved to use.