Mortgage Glossary 

Adjustable-Rate Mortgage (ARM) 
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages). 

Amortization 
The gradual repayment of a mortgage loan, both principal and interest, by installments. 

Annual Percentage Rate (APR) 
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate. 

Appraisal 
A written analysis prepared by a qualified appraiser and estimating the value of a property. 

Appraised Value 
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. 

Balloon Mortgage 
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term. 

Certificate of Eligibility 
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage. 

Closing 
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement." 

Closing Costs 
These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used. 

Credit Report 
A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness. 

Deed of Trust 
The document used in some states instead of a mortgage. Title is conveyed to a trustee. 

Down Payment 
Part of the purchase price of a property that is paid in cash and not financed with a mortgage. 

Escrow 
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate. 

Escrow Payment 
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. 

FHA Mortgage 
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. 

Fixed-Rate Mortgage (FRM) 
A mortgage interest that are fixed throughout the entire term of the loan. 

Housing Expense Ratio 
The percentage of gross monthly income budgeted to pay housing expenses. 

HUD-1 statement 
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. 

Insured Mortgage 
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). 

Interest 
The fee charged for borrowing money. 

Liabilities 
A person's financial obligations. Liabilities include long-term and short-term debt. 

Loan-to-Value (LTV) Percentage 
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent. 

Mortgage 
A legal document that pledges a property to the lender as security for payment of a debt. 

Mortgage Banker 
A company that originates mortgages exclusively for resale in the secondary mortgage market. 

Mortgage Broker 
An individual or company that brings borrowers and lenders together for the purpose of loan origination. 

Mortgage Insurance 
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency. 

Mortgage Insurance Premium (MIP) 
The amount paid by a mortgagor for mortgage insurance. 

Origination Fee 
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. 

PITI Reserves 
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three). 

Points 
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them. 

Pre-Approval 
The process of determining how much money you will be eligible to borrow before you apply for a loan. 

Pre-Qualification 
The process of determining your borrowing ability after Credit and your liabilities have been reviewed. 

Principal 
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage. 

Principal, Interest, Taxes, and Insurance (PITI) 
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not. 

Private Mortgage Insurance (PMI) 
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent. 

Qualifying Ratios 
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio. 

Rate Lock 
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time. 

Refinance   
Paying off one loan with the proceeds from a new loan using the same property as security. 

Servicer 
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market. 

Total Expense Ratio 
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts. 

Truth-in-Lending 
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.