Glossary

Adjustable-Rate Mortgage (ARM) - a mortgage with a variable interest rate that changes during the term of the loan. The variable rate is linked to a published index.

Amortization - process of reducing the outstanding principal on an open loan with each payment, usually monthly, so that it is fully repaid at the loan's maturity.

Annual Percentage Rate (APR) - yearly interest rate that includes interest, points, and other loan fees. The APR is the appropriate number to use when comparing loan interest rates.

Appraisal - report that estimates the market value of a property.

Cap - on adjustable-rate loans, the set limit to which the interest rate on your loan can increase during each adjustment period and/or throughout the duration of the loan.

Closing Costs - costs linked with buying or selling real estate including the title, transfer, and loan fees.

Earnest Money - deposit of cash given by the buyer to the seller at the time of the purchase offer.

Equity - value of your home less the amount that you owe on your mortgage.

Escrow Account - account established to pay for real estate taxes and homeowners' insurance.

FHA Loan - guaranteed by the federal government.

Fixed-Rate Mortgage - loan with a specific interest rate that does not change during the life of the loan.

Index - published interest rate used for adjustable-rate mortgages.

Jumbo Mortgage - mortgage amount over $252,700 is considered a jumbo loan.

Lien - claim against a property for outstanding debt.

Margin - amount added to the index which determines the interest rate for adjustable-rate mortgages.

Mortgage - document that gives a lender a lien on real estate property used as collateral for payment of a debt. Usually
borrowers refer to both the note and the lien collectively as the mortgage.

Point(s) - one point is equal to one percent of the mortgage loan.

Prepayment - paying off the loan amount before it is due.

Principal - balance of the mortgage not including interest.

Private Mortgage Insurance (PMI) - lenders usually require this insurance when a borrower makes a down payment of less than 20 percent.

Title - legal document that shows proof of ownership.