Below is a glossary of common mortgage terms. Some terms may no longer apply in today's market — call us if you have questions.
Adjustable Rate Mortgage (ARM)
A loan with an interest rate that can change periodically based on a published index, subject to caps on how much it can move at each adjustment.
Amortize
Paying off a debt through regular installment payments over a set period, ending with a zero balance.
Annual Percentage Rate (APR)
The yearly cost of a loan including interest rate, points, broker fees and certain other charges.
Appraisal
A professional estimate of a property's value based on comparable sales.
Closing Costs
Costs to complete a real estate transaction, in addition to the home's price, including points, taxes, title insurance and other fees.
Down Payment
A portion of the home's price — usually 3–20% — paid at closing rather than borrowed.
Equity
Your ownership interest in a property after liabilities are deducted.
Escrow
A lender-held account where a homeowner pays money toward taxes and insurance.
Fixed Rate Mortgage
A loan where the interest rate stays the same for the life of the loan.
Good-Faith Estimate
A written statement itemizing approximate costs and fees for a mortgage. Today it applies only to reverse mortgages (HECM). For all other home loans, the Loan Estimate takes its place.
Loan Estimate
A standardized form that itemizes the estimated interest rate, monthly payment and closing costs for a mortgage loan. It replaces the Good-Faith Estimate for home loans other than reverse mortgages.
Mortgage Insurance
Insurance that protects lenders against losses from borrower default, typically required when the down payment is less than 20%.
Points
1% of the loan amount — for example, one point on a $50,000 loan equals $500.
Principal
The amount borrowed, or remaining to be repaid, not including interest.
Rate Cap
The limit on how much an ARM's interest rate can increase or decrease during an adjustment period.
Refinance
Paying off an existing loan with a new, usually lower-rate, loan.
Reverse Mortgage Loan
A federally insured loan for seniors that requires no monthly mortgage (principal and interest) payments. Borrowers still pay property taxes and homeowners insurance and must maintain the home.
Title
Documented evidence that a person or organization owns real property.
Underwriting
The process a lender uses to evaluate the property and the borrower's credit and ability to repay before approving a loan.
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