Mortgage Terminology

Adjustable Rate Mortgage (ARM) - Also called a Variable Rate Mortgage. These loans generally begin with an interest rate that is 1 to 2 percent below a comparable fixed-rate mortgage. However, the interest rate changes at specific intervals. While this could allow you to buy a more expensive home, if interest rates go up (down), your monthly mortgage payment also goes up (down).

Annual Percentage Rate (APR) - The Annual Percentage Rate represents the interest to be paid on the Note plus prepaid items expressed as a constant rate as if they were all paid over the term of the loan.

Closing Costs - All the charges associated with taking out a mortgage, including the origination fee, discount points, appraisal fee, title search and policy, insurance, flood certification, taxes, deed recording fee, charges for credit reports and other costs.

Down Payment - The part of the purchase price that the buyer pays in cash and does not finance with the loan.

Escrow - A special third-party account set up by the lender in which funds are held to pay for taxes and insurance. This can also be called Reserves or Impounds.

Fixed-Rate Mortgage - With a Fixed-Rate Mortgage, your principal and interest payment stay the same for the life of the loan. Your property taxes and homeowner’s insurance may increase therefore increasing your total PITI payment.

PITI Payment - Full payment, including Principal, Interest, Taxes and Insurance.

Points - A one-time charge paid at closing to facilitate a lower interest rate. A point is 1% of the amount of the mortgage. The more points you are willing and able to pay, the lower your interest rate could be.

Preliminary Title Report - A check of the title records to insure the seller is the legal owner of the property and there are no liens or other outstanding claims.

Private Mortgage Insurance (PMI)- Insurance the buyer carries to guarantee the lender is paid if the buyer defaults on a mortgage. This is different from homeowner’s insurance. It is generally required for all mortgages with less than a 20-percent down payment. The exact amount depends on the amount of the loan and the size of the down payment.

Title Insurance - A policy which insures you against errors in the title search, essentially guaranteeing you and you lender’s financial interest in the property.

Underwriting - The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s credit-worthiness, income, and quality of the property itself.

Warranty Deed - A legal, recorded document that conveys title of a property from one owner to the next.