Mortgage

Mortgage Terms

Adjustable-Rate Mortgage (ARM): A mortgage with interest rates and monthly payments adjusted at regular intervals based on changes in either a national or regional index. Also called "variable-rate mortgage."

Amortization: A loan payment schedule characterized by equal periodic payments that are calculated to meet current interest payments and retire the principal at the end of a fixed period (at maturity if the loan is fully amortized).

Annual Percentage Rate (APR): The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, private mortgage insurance, and loan origination fee (points).

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.

ARM Margin: The spread (or difference) between the index rate and the mortgage interest rate for an adjustable-rate mortgage.

Balloon Mortgage: A mortgage in which the debt service (the regular payments of principal and interest) will not result in the complete payment of the loan by the end of the mortgage term.

Cap: A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Cash Reserve: A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.

Closing: The completion of a real estate transaction that transfers rights of ownership to the buyer. Also called "settlement."

Condominium: A type of property ownership within a multiunit complex in which the homeowner owns a unit and a proportionate interest in certain common areas, such as the grounds of the complex.

Contingency: A condition that must be met before a contract is legally binding.

Conventional Mortgage: A loan that is not insured or guaranteed by the federal government.

Credit Report: A report from an independent agency that verifies a loan applicant's information on previous debts and liabilities.

Deed: The legal document conveying title to a property.

Down Payment: The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Earnest Money: A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement: A right of way giving persons other than the owner access to or over a property.

Equity: A homeowner's financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.

Escrow: The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

FHA Mortgage: A mortgage that is insured by the Federal Housing Administration. Also referred to as a "government" mortgage.

First Mortgage: A mortgage that is the primary lien against a property.

Fixed-Rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

Flood Insurance: Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.

Hazard Insurance: Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.