Mortgage Terminology:

When speaking with a broker or mortgage company or even looking at a lender's web site, you may think you are reading a different language altogether. In essence, you are and to prepare yourself for understanding all that is involved with home loans and home ownership, it is your responsibility to become as well informed as possible with regard to the associated terminology.

Here is a short list of just some of the terms that you will see on a regular basis:

Acceleration: The right of the lender to demand immediate repayment on the balance of the mortgage loan if the borrower defaults or by using the right vested in the Due-on-Sale Clause.

Adjustable rate mortgage (ARM): This is a mortgage where the interest rate is adjusted periodically based on a pre-selected index.

Amortization: This is the loan payment by equal periodic payment is calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual percentage rate (A.P.R.): This interest rate reflects the cost of a mortgage as a yearly rate. The APR allows homebuyers to compare various mortgage types based on the annual cost for each loan.

Balloon mortgage: Typically a short-term fixed-rate loan that involves small payments for a specific period of time with one large payment for the remaining amount of the principal at a time specified in the contract.

Borrower: The person who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Broker: An individual who assists in arranging funding or negotiating contracts for a client who does not, however, loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Closing: When the buyer, seller, seller, and lender (or their agents) meet to legally permit the exchange of the property and funds. Closing costs typically include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. An average closing cost is somewhere between 3 and 6 percent of the mortgage amount.

Credit Report: A borrower’s credit standing and history is documented in this report.
Deed: A written document conveying real property.

Down Payment: Amount of money paid to make up the difference between the purchase price and the mortgage amount.

Equity: Difference between fair market value and current indebtedness, also referred to as the owner's interest.

Escrow: An account held by the lender into which the homebuyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

FHA loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. Limits exist as to the size of FHA loans with a maximum of $208,800 depending on location. These are generous enough to handle moderately priced homes almost anywhere in the country.

Fixed Rate Mortgage: The mortgage interest rate will remain the same on this type of mortgage throughout the term of the mortgage for the original borrower.

Graduated Payment Mortgage (GPM): A flexible-payment mortgage where payments increase for a period of time and then level off. This type of mortgage has negative amortization built into it.

Jumbo Loan: A larger loan, more than $240,000, than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Negative Amortization: This occurs when your monthly payments are not large enough to pay all the interest due on the loan. The amount of unpaid interest is added to the unpaid balance of the loan.

Origination Fee: Fee charged by a lender to prepare loan documents, run credit checks, inspect and sometimes appraise a property. This fee is usually computed as a percentage of the face value of the loan.

Points: Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000).

Principal: The amount of debt left on a loan minus interest.