Mortgage Glossary

Adjustable-Rate Mortgage (ARM) – A loan with an interest rate that remains fixed for a period of time and then adjusts with market conditions on pre-determined dates.
Amortization — The way in which a loan is repaid in installments of principal and interest, according to a regular schedule, over the life of the loan.
Appraisal—A report written by a qualified expert that states an opinion on the value of a property based on the characteristics and the selling prices of similar properties or comparable properties.
Closing—The final step after a lender approves an application. The homebuyer signs all of the final documents and the funds for the loan are turned over to the homebuyer’s closing agent.
Closing Agent - Usually a representative from a title agency who oversees the closing and witnesses signing of the closing documents.
Commitment Letter—A binding, written pledge, by the lender to a mortgage applicant, to make a loan, usually under certain stated conditions.
Credit Report—A report issued by an independent company which contains a person’s credit history and current credit standing.
Credit Score—A numerical rating that indicates an applicant’s creditworthiness based on a number of criteria.
Debt-to-Income Ratio—A formula used to determine the percentage of an applicants debt compared to their income. Debt is divided by income.
Deed—A legal document that transfers ownership of a property.
Down Payment—A portion of the sales price paid by the homebuyer to the seller at closing. The difference between the sales price and the mortgage loan amount.
Equity—The value of the property that exceeds the current amount owed on the property. Example: Property value is $100,000 and the amount owed on the property is $75,000, then the amount of equity is $25,000.
Fixed-Rate Mortgage—A loan with an interest rate that remains the same for the entire term of the loan.
Good Faith Estimate—A document that tells the applicant the approximate costs they will pay at or before closing.
Homeowner’s Insurance (also called hazard insurance) – An insurance policy required of the buyer protecting the property against loss caused by fire, some natural causes, vandalism, etc. May also include added coverage for personal belongings and theft.
HUD-1 Settlement Statement—A standard form used to show all of the costs at closing.
Interest Rate—A percentage of the mortgage amount that is paid to the lender for the use of the lender’s money, expressed as a percentage.
Lien—A legal hold or claim of a creditor on the property of another as a security for the debt.
Mortgage Insurance—An insurance policy that will repay a portion of the loan if the borrower does not make payments as agreed on the note. Mortgage insurance may be required if the borrower puts less than a 20% down payment.
Mortgagee—The lender.
Mortgagor—The borrower.
Note—An agreement which states the home mortgage amount to be borrowed and the terms and conditions of the loan. It also includes a complete description of how the loan should be repaid and the time frame of the repayment.
Origination Fee—The amount collected by the lender for making a loan.
Points—One point equals 1% of the loan amount. They are usually paid by a borrower to reduce the loan’s interest rate.
Principal—The amount of a loan, excluding interest; or the remaining balance of the loan, excluding interest.
Title—Evidence of current right to or ownership of a property, plus a history of its ownership and transfers.
Title Insurance—An insurance policy that insures against any losses to the property that result from defects in the title or deed.
Truth-In-Lending Statement—A statement required by federal regulations that tells consumers the cost of financing their loan expressed as the annual percentage rate (APR). It also discloses all material terms of the loan including the number of payments, payment amounts, etc.