Hey there! Below you’ll find a list of mortgage terms and definitions to help guide you through your mortgage process. Whether you’re new to the game or just want to brush up on your terms, this list is sure to come in handy. For ease of access, we recommend bookmarking this page. Happy hunting!
Adjustable Rate Mortgage – ARM
A mortgage where the interest rate is adjusted at regular intervals based on a standard rate index, many ARMs have a limit, or cap, on how the rate can increase.
Amortization
The process of mortgage debt being altered, most commonly declining, as payments are made to the lender. When the payments are too small to cover either the principal or interest reductions, “negative amortization occurs.”
Annual Percentage Rate – APR
The annual rate of interest paid on a loan.
Appraisal
An evaluation of the value of a property, often required by lenders.
Balloon Mortgage
A loan where some of the debt will remain unpaid at the end of the loan term, resulting in a single large payment due when the loan ends.
Cap
The limit on how much a mortgage interest rate may increase or decrease for an ARM.
Conventional Mortgage Loan
Home loan with a fixed interest rate.
Debt-To-Income Ratio
Used by lending companies to determine if a person is qualified for a mortgage loan. Your current rent or utility bills are not considered in this calculation.
Debt-To-Income Ratio = total debt (monthly payments) / gross monthly income
Default
Failure to pay mortgage payments.
Discount Points
Part of the mortgage paid to the lender to lower the rate on a loan.
One point = 1%
Equity
The difference between the market value of a property and the amount still owed.
Escrow
Used by brokers to hold deposit money prior to closing.
FHA Loan
Loan guaranteed by the Federal Housing Administration with specific guidelines.
Margin
The set number of percentage points a lender adds to the index to determine the interest rate for an ARM.
PITI
The principals of the monthly housing expense – principal, interest, taxes, and insurance.
Prepayment Penalty
A fee for paying off a mortgage before it’s due.
Principle
The amount of the loan.
Title Company
Company that searches for titles and insurance claims, this is where your loan will close.
Truth In Lending Act
A federal law that requires lenders to reveal all terms and conditions of mortgages.
VA Loan
A loan guaranteed through the Veterans Administration, borrowers must have served in the United States Armed Forces to obtain.
