Terminology

Adjustment Interval - The time between changes in your interest rate and monthly payments with an adjustable rate mortgage.

Application Fee - What the lender charges to process your application. This is usually not refundable.

Appraisal - A written estimate of the current value of the home to be purchased, prepared by a licensed, certified appraiser.

ARM (Adjustable Rate Mortgage) - A mortgage where your interest rate and payments can go up or down.

APR (Annual Percentage Rate) - The cost of your loan expressed as a yearly rate. For mortgages, it takes into account interest, points, origination fees and any mortgage insurance required by the lender.

Assumable Mortgage - An option that allows you to transfer your mortgage and its terms to the purchaser of your home. This can be an advantage if and when you sell.

Bi-Weekly Mortgage - Allows you to make regular payments equal to one half your monthly payment every two weeks, which results in pre-payment of your mortgage by one full payment each year.

Call Option - Allows the lender to require repayment of the loan in full before the term is up.

Caps - Safeguards that limit how much your ARM interest rate and payments can go up at any one time and over the life of the loan.

Closing Costs - Money paid by the borrower and/or seller when the loan is closed. (See "Questions To Ask When You're Getting A Mortgage.")

Conventional Financing - Mortgage loans made without the government backing provided on VA and FHA loans.

Escrow Account - An account set aside by your mortgage lender to pay for annual expenses, such as insurance and property taxes. Part of your mortgage payment each month goes to this account, so you don't have to make one lump payment when these expenses are due.

Fixed Rate Loan - A loan where the interest rate does not change.

Index - A published rate used by lenders to calculate the interest adjustments on ARMs. It can vary from lender to lender.

Initial Rate - The rate charged for the first interval of an ARM. It is usually lower than current fixed rates.

Loan-To-Value Ratio - The percentage of the appraised value of sales price (whichever is lower) of the property that a lender is willing to lend. For example, if a home is appraised at $45,000 and the lender has an 80% loan-to-value ration, the most you could borrow would be $36,000 (45,000 x .80).

Margin - The amount added to an index to determine the interest rate on an ARM.

Origination Fee - What a lender charges to initiate and process a mortgage loan.

Point - Fee charged by the lender equal to one percent of the amount borrowed.

Refinance - Taking out a new loan to pay off an existing loan. Generally involves new loan costs.

Rate Guarantee (Lock-In) - A guarantee that the rate in effect when you apply will be the final rate when you close your loan. Good for a specific time only.

Term - The number of years it will take to pay off your loan making your regular payments.

Title Insurance - A policy that protects the lender and/or purchaser against loss due to problems with the title.

Title Search - Verification that the title to the property you are buying is clear of any claims from other persons.

Underwriting - Guidelines the lender uses to determine if a borrower qualifies for a loan.