Mortgage

A loan specifically used to purchase real estate.

Principal

The amount of money borrowed on which interest is paid.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal.

Amortization

The process of spreading out a loan into a series of fixed payments over time.

Fixed-Rate Mortgage

A mortgage with a fixed interest rate for the entire term of the loan.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a benchmark.

Down Payment

An initial payment made when something is bought on credit.

Equity

The value of the homeowner’s interest in their home, calculated as the home’s value minus the remaining mortgage balance.

Escrow

An account where funds are held in trust while two or more parties complete a transaction.

Closing Costs

Fees paid at the closing of a real estate transaction, above the purchase price.

Title

A legal document evidencing a person’s right to or ownership of a property.

Lien

A legal claim or hold on a property as security for a debt or charge.

Refinance

The process of obtaining a new mortgage to replace an original one, usually to reduce the interest rate.

Foreclosure

The process by which a lender takes possession of a property due to failure to pay the mortgage.

Pre-approval

An evaluation by a lender that determines if you qualify for a loan and how much you can borrow.

Credit Score

A numerical expression based on a level analysis of a person’s credit files to represent the creditworthiness of an individual.

Debt-to-Income Ratio (DTI)

A personal finance measure that compares an individual’s debt payment to his or her overall income.

Underwriting

The process a lender uses to determine if the risk of offering a mortgage to a particular borrower under certain parameters is acceptable.

Loan-to-Value Ratio (LTV)

A ratio used by lenders to express the amount of a loan against the value of an asset purchased.

Points

Fees paid directly to the lender at closing in exchange for a reduced interest rate.

Origination Fee

A fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.

Private Mortgage Insurance (PMI)

Insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan.

Loan Estimate

An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be provided to the borrower within three days after submission of a loan application.

Closing Disclosure

A form that provides final details about the mortgage loan you have selected; it includes the loan terms, projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.

Balloon Payment

A large payment due at the end of a balloon mortgage, which typically covers most of the principal.

Home Inspection

An examination of a real estate property’s condition, usually performed in connection with the property’s sale.

Appraisal

An estimation of a home’s market value, conducted by a qualified professional.

Conforming Loan

A mortgage that meets the requirements to be purchased by Fannie Mae or Freddie Mac.

Non-Conforming Loan

A mortgage that does not meet the guidelines of Government Sponsored Enterprises (GSE) such as Fannie Mae and Freddie Mac.

Repayment Term

The period of time over which the loan is scheduled to be repaid.