Mortgage Terms

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower’s risk, the ARM may have a payment or rate cap.

See: Cap

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

An estimate of a property’s value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property’s ability to produce income.

A property’s increase in value due to inflation or economic factors.

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized.

The ratio between a borrower’s monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans).

The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.

A mortgage whose rate remains constant throughout the life of the mortgage.

This includes amounts from a relative or a grant from the borrower’s employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.

The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money.

A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.

A formal document establishing ownership of property.

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer’s credit history, employment history, assets, debts and other factors such as loan guidelines.