Glossary Terms
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that can adjust at pre-determined intervals. An ARM loan is typically fixed for the first 2, 3, 5, 7 or 10 years and can adjust annually thereafter. ARM interest rates and the degree to which they fluctuate at the end of every adjustment period, are determined by:
- Index: Published economic indices such as the U.S. Treasury Securities.
- Margin: A fixed percentage (usually 2% to 3%) that is added to the index at each adjustment period.
- Rate Cap: Typically the maximum amount your rate can increase or decrease per adjustment period and over the life of the loan. This protects you in case of volatile market swings.
Amortization Schedule
A timetable schedule showing the amount of each payment applied to interest and principal and the remaining balance after each payment is made.
Annual Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; it includes such items as interest, mortgage, and loan origination fee.
Appraisal
A written analysis of the estimated value of a property prepared by a licensed appraiser.
Biweekly Payment Mortgage
A mortgage requiring payments every two weeks instead of the standard monthly payment. The result for the borrower is a substantial savings in interest.
Certificate of Title
A statement provided by an abstract company or attorney stating that the title to real estate is legally held by the current owner.
Closing
A meeting at which the sale of a property is finalized by the buyer signing the mortgage documents, paying closing costs, and receiving the transfer of the deed to the property.
Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan.
Deed
The legal document conveying title to a property.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Equity
A homeowner’s financial interest in a property.
Escrow Account
A segregated trust account in which funds are held by the lender to pay for ongoing items, like homeowners insurance, mortgage insurance and property taxes.
Escrow Agent
The person or organization having a fiduciary responsibility to both the buyer and seller (or the lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also called the escrow company or closing agent.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Fixed Rate Mortgage
A mortgage in which the interest rate and payments remain the same for the life of the loan.
Good Faith Estimate
A document which tells borrowers the approximate costs they will pay at or before settlement.
Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property.
Lien
The legal claim against a property that must be satisfied before the property may be sold.
LIBOR (London Inter-Bank Offering Rate)
The rate at which banks in the foreign market lend dollars to one another. LIBOR varies by deposit maturity. A common interest rate index that is one of the most valid barometers of the international cost of money.
Lock-in
A written agreement in which the lender guarantees a specified interest rate if the mortgage goes to closing within a set period of time.
Mortgage
A legal document that pledges a property to a specific lender as security for payment of a debt. (Also commonly known as a home loan.)
Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage.
Net Worth
The value of all of a person’s assets, including cash, minus all liabilities.
Prime Rate
The interest that banks charge to their preferred customers.
Principal
The amount borrowed or remaining unpaid.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachment, and other physical features.
Title Insurance Policy
A required contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.
Title Search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Truth in Lending
A federal law requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate and other charges.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender.