Adjustable-Rate Mortgage – A loan with an interest rate that can move up or down with national interest rates, instead of being fixed at one rate over the life of the loan.
Annual Percentage Rate (APR) – A way of expressing the charges a borrower pays to get a mortgage loan in terms of an annual interest rate. APR includes the loan's interest rate, fees and points.
Appraisal – A professional estimate of your property's current market value.
Appraisal Fees – The fee to be paid at closing for inspecting your property to determine its value, and the amount of home equity you have.
Balloon Payment – A large payment due at the end of the loan term to pay off the balance. Some borrowers agree to a balloon payment in exchange for a lower interest rate – and lower monthly loan payments.
Broker – An independent middleman who arranges deals between borrowers and lenders. A broker is compensated for his services by the borrower and/or by the lender.
Closed-End Home Equity Loan – A loan made for a specific amount and time period.
Closing – The time when loan documents are signed and closing costs are paid to finalize the loan.
Closing Costs – Costs paid by the borrower to finance a home loan (including points, insurance, and other fees).
Credit Life Insurance – An optional life insurance product offered by some lenders that pays off your loan if you die. No one is required to buy credit life insurance.
Credit Rating – A rating given to a person based on experience managing credit (credit cards, mortgage, loans, etc.), reliability making loan payments current financial condition (income, savings, outstanding debt, etc.) and other factors. People with strong credit ratings tend to qualify for lower-cost loans, while people with weaker ratings might have to pay a higher interest rate.
Credit Report – A report put together by one of the three independent credit agencies that shows your credit history. You can get copies of your credit report by contacting the three agencies: Experian (800-997-2493), Equifax (888-397-3742) and Trans Union (800-888-4213).
Debt Service – The combined principal and interest due on your loan each month.
Earned and Unearned Income – While earned income is based on wages, salary, or business profits, unearned income refers to interest, dividends, rental income, pension benefits, and the like.
Escrow – A deposit from the borrower that is held in a separate account while the loan is being processed until all conditions are met to fund the loan.
First Lien – A primary claim by the lender for satisfaction of outstanding debt.
Fixed Rate Mortgage – A loan with an interest rate and monthly payments that stay the same as long as you have the loan.
Home Equity – The difference between the value of your house and what you still owe on your mortgage.
Home Equity Lines of Credit – Similar to a credit card, money used from that “account” is borrowed against the equity of the home.
Home Improvement Loan – A loan used to pay for permanent improvements to a home.
Index Rate – A rate used by lenders that reflects general trends of national interest rates such as those on Treasury notes. When determining changes in interest rates on adjustable rate mortgages, lenders charge a set amount above the index rate.
Interest Rate – When you make your loan payments every month, you are paying back the amount you borrowed plus interest. Interest is a percentage of your loan amount. For example, if you borrow $1,000 for one year and have a 10-percent interest rate, you will end up repaying your lender $1,100.
Loan-to-Value Ratio – A comparison of the amount of the loan to the appraised value of the property.
Non-Conforming or “Subprime” Loan – Types of loans available to different categories of borrowers. While conforming loans follow the strictest guidelines for eligibility, non-conforming loans are offered by many lenders in the form of a range of programs, which are tailored to individual circumstances. Ratings for conforming loans are “A” while for non-conforming loans they are “A-”; “B”; “C”; and “D.” Consumers with an “A-” rating have good credit histories while those with a “D” are considered to be a higher credit risk.
Origination Fees or Points – The fees or “points” a lender charges to process a loan. Usually based on the amount of the loan, one point equals one percent of that loan amount.
Points – An upfront fee that the borrower pays the lender to get the loan. Each point equals 1 percent of the total amount of the loan.
Pre-Payment Penalty – A fee imposed by certain lenders if the mortgage is paid off before it matures.
Principal – The amount of money you are borrowing, not counting any fees, costs or interest.
Private Mortgage Insurance (PMI) – You may be required to buy PMI to insure your lender against losses in the event you fail to repay your loan.
Refinance Loan – A new loan that pays off your existing mortgage, and may also be used to receive cash for the equity in your home.
