Glossary of Terms for the Mortgage Industry

Adjustable Rate Mortgage (ARM)- interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified financial index.

Amortization- repayment of a mortgage debt with equal periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.

Annual Percentage Rate (APR)- the actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate.

Application Fee- a one-time fee charged by the mortgage company for processing your application for a loan. Sometimes called the "origination fee."

Appraisal- an expert opinion of the value or worth of a property.

Buy-Down Mortgage- a mortgage with a below-market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer.

Buyer's Market- economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price concessions.

Comparative Market Analysis- a survey of attributes and selling prices of comparable houses on the market or recently sold; used to help determine pricing strategy for a seller's property.

Contingency- a condition in a contract that must be met for the contract to be binding.

Contract- binding legal agreement between two or more parties that outlines the conditions for the exchange of value.

Credit Report- a credit report lists all of your credit accounts such as charge cards, and provides detail on payment history. Lenders use this information in determining eligibility for loans.

Down Payment- percentage of the purchase price that the buyer must contribute with their own funds.

Earnest Money- a deposit paid when the sale contract is signed before the closing. In some locations, it's called the "Binder."

Equity- the difference between the market value of the property and what is owed on the property.

Escrow- a fund or account held by a thrid-party custodian until conditions of a contract are met.

Fixed-Rate Mortgage- interest rates on this type of mortgage remain the same over the life of the loan term.

Homeowner's Insurance- coverage that included hazard insurance, as well as personal liability and theft.

Interest- the cost of borrowing money, usually expressed as a percentage over time.

Lien- a security claim on property until a debt is satisfied.

Loan-to-Value Ratio- the ratio of the loan amount compared to the value of the property. Referred to as "LTV."

Market Value- the price that is established by present economic conditions, location, and general trends.

Market Price- the actual price at which a property sells.

Mortgage- security claim by a lender against property until the debt is paid.

Point- one percent of the loan principal paid up front to reduce the interest rate on the loan.

Prepayment Penalty- a fee paid by a borrower who pays off the loan before it is due.

Mortgage Insurance (MI)- special insurance that protects the lender in case of borrower default. It's typically required when the borrower makes less than a 20% down payment.

Title- document that indicates ownership of a specific property.

Title Insurance- protects against loss from legal defects in the title.

Title Search- detailed examination of the entire document history of a property title to make sure there are no legal encumbrances.