Adjustable Rate: An interest rate that changes periodically based on an index, causing payments to either increase or decrease accordingly.

Amortization: A repayment method where the borrowed amount is gradually repaid through regular monthly payments of principal and interest. During the initial years, most payments cover interest, while the latter years focus on the remaining principal.

Annual Membership: A yearly charge for having a line of credit available, often irrespective of usage. Also known as a “participation fee.”

Annual Percentage Rate (APR): The cost of credit expressed as a percentage on an annual basis. It includes upfront costs, making it typically higher than the interest rate alone. Excludes title insurance, appraisal, and credit report.

Application: An initial submission of personal and financial information needed to approve a loan.

Application Fee: Fees paid upon application, which may include charges for property appraisal and a credit report.

Appraisal: A fee charged by an appraiser to assess the market value of the property. Required by most lenders for loan approval.

Assumption of Mortgage: When a purchaser becomes primarily liable for mortgage payments, though the seller may remain secondarily liable.

Balloon Payment: A lump sum payment for the remaining loan balance.

Cap: The maximum allowable increase, either in payment or interest rate, for a specified period on an adjustable-rate mortgage.

Cash Out Refinancing: Receiving money back when refinancing an existing mortgage.

Ceiling: The maximum allowable interest rate over the life of an adjustable-rate mortgage.

Closing Costs: Fees paid by borrowers or sellers during mortgage loan closing, covering expenses like origination, attorney’s fees, title insurance, and more.

Conforming Loan: A mortgage loan under $203,150, subject to standardized qualifying ratios and underwriting.

Contract of Sale: An agreement between buyer and seller outlining the purchase price, terms, and conditions for transferring property title.

Credit Limit: The maximum amount available to borrow under a home equity plan.

Debt Service: The total amount of credit card, auto, mortgage, or other debt requiring payment.

Deed of Trust: An agreement used in many western states, pledging real estate as security for a loan, similar to a mortgage.

Discount Points: Amount paid to maintain or lower the interest rate, with each point equal to 1% of the loan amount.

Down Payment: The difference between the purchase price and the financed portion, often requiring payment from the buyer’s own funds.

Due on Sale: A clause enabling the lender to demand the outstanding mortgage balance if the property is sold or transferred.

Effective Interest Rate: The cost of credit expressed as a percentage yearly, incorporating upfront costs.

Encumbrance: A claim against a property by another party that may impact ownership transfer.

Equity: The difference between the fair market value of a home and the outstanding mortgage balance.

First Mortgage: A mortgage in the first lien position, taking priority over other liens.

Fixed Rate: An interest rate fixed for the loan term, with fixed monthly payments.

FHA Loan: An FHA-insured loan for which the Federal Housing Administration insures the lender against losses from default.

Good Faith Estimate: A written estimate of closing costs provided by the lender within three days of an application.

Grace Period: A timeframe during which a loan payment may be paid after the due date without incurring a late penalty.

Gross Income: The borrower’s income before taxes or expenses are deducted.

Home Equity Line of Credit : The HELOC loan allowing flexible borrowing up to a qualified maximum credit limit, secured by home equity.

Home Equity Loan: A fixed or adjustable-rate loan secured by home equity for various purposes, often used for home improvements or debt consolidation.

Hazard Insurance: Insurance compensating the insured for property loss due to hazards like fire or hail, in exchange for a premium.

HUD I Settlement Statement: A form universally used during loan closing to itemize costs associated with purchasing a home, mandated by HUD.

Index: A number or percentage on which future adjustable-rate mortgage interest rates are based.

Interest Rate: The periodic charge expressed as a percentage for the use of credit.

Jumbo Loan: A mortgage loan exceeding $203,150, with terms and underwriting requirements varying from conforming loans.

Loan to Value Ratio (LTV): The ratio of the loan amount to the property’s sales price or appraised value, expressed as a percentage.

Lock or Lock In: A lender’s commitment ensuring a specified interest rate or feature for a defined period, protecting against rate increases between application and closing.

Margin: An amount added to the index to determine an adjustable-rate mortgage’s interest rate.

Minimum Payment: The lowest amount required monthly for a home equity loan or line of credit.

Mortgage Banker: Originates mortgage loans, providing funding and closing loans in their name.

Mortgage Broker: Facilitates loan applications and paperwork, working on behalf of various investors without funding the loan.

Mortgage Insurance (MIP or PMI): Insurance protecting lenders against loss due to borrower default. MIP is for government-insured loans, while PMI applies to non-government-insured loans with an LTV over 80%.

Mortgage Loan: A loan using real estate as collateral for repayment.

Mortgagee: The lender in a mortgage loan transaction.

Mortgagor: The borrower in a mortgage loan transaction.

Negative Amortization: When payments are insufficient to fully repay the loan, causing the balance owed to increase.

PITI: Principal, interest, taxes, and insurance, comprising the monthly mortgage payment.

Points: Amounts paid to maintain or lower the interest rate, each equal to 1% of the loan amount.

Prepayment Penalty: A fee for paying off a loan before the scheduled maturity date.

Qualifying Ratios: Comparisons of a borrower’s debts and gross monthly income.

Right to Rescission: The legal right to void a mortgage contract, applicable to certain types of mortgages.

Security Interest: Lender’s interest in the borrower’s property to ensure debt repayment.

Servicing a Loan: The ongoing collection of monthly mortgage payments and managing tax and insurance bills.

Title: Written evidence proving ownership of a specific property.

Title Insurance: Protection against financial loss due to legal defects in the property title.

Transaction Fee: A fee charged for each withdrawal on a home equity credit line.

Underwriting: The process of verifying data and approving a loan.

Variable Rate: An interest rate changing periodically based on an index, leading to adjustable payments.

VA Loan: A VA-insured loan for veterans, insured by the Veteran’s Administration against lender losses due to default. Available only to veterans with a Certificate of Eligibility.