A Glossary of Mortgage Terms

Adjustable Rate Mortgage, also known as variable-rate mortgages, usually offer a lower initial interest rate than fixed-rate mortgages. Several types of adjustable rate mortgages are available to meet your specific needs. Rates can adjust either up or down depending upon current market conditions and predetermined "caps" are placed upon these loans so buyers can plan well into the future.

Annual Percentage Rate (APR) is the total cost of credit (including prepaid costs) expressed as an annual percentage rate charged yearly.

Appraisal is a document supplied by a licensed independent "third party" estimating the fair market value of a particular property or home. An "appraisal" allows both the buyer and lender to determine estimated values of a property or home.

Conventional Mortgage is a mortgage loan other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or other agencies.

Escrow is an amount set aside by the lender to ensure that taxes, insurance and other premiums are paid in a timely manner when due by a third party.

Fixed Rate Mortgage is a mortgage loan that maintains the same interest rate throughout the life of the loan.

Interest Rate is the percentage rate lenders charge borrowers for use of their funds over an extended period of time.

Lock In Fee is an amount charged by lenders to guarantee an interest rate at a particular time and day. Interest rates vary daily and often several times during any given day.

Mortgage is a legal document pledging certain property or properties as collateral for repayment of a loan.

Origination Fee is an amount expressed either as a percentage of the loan or set dollar amount charged by a lender or broker for initiating, obtaining funding, and coordination of the mortgage process.

Pre-Qualified is an informal estimate of a borrower's ability to repay a loan based on preliminary information obtained from the borrower. Pre-qualifying allows a borrower to obtain an estimate of what they can afford prior to selection of a new home.

Pre-Approval is the preliminary approval for obtaining a mortgage based on review of available documents (ie. pay stubs, employment records, bank statements, etc.) required by the lender.

Private Mortgage Insurance (PMI) is an insurance policy issued by a third party insuring that the lender will be repaid in the event of default by the borrower. Generally, PMI is required by lenders who loan more than 80% of the appraised value and can be removed once the borrower obtains an 80% equity position.

Processing is the act of gathering necessary document(s) and verification(s) of supporting documentation required by the lender. "Processing" is usually performed by a third party (individual or company) other than the "originator" or "lender".

Settlement, Transaction "Closing" is the process of ensuring that all parties are in agreement with the "Terms and Conditions" of funding the mortgage and the owner's right(s) to the property. Settlements and/or Closings are generally conducted at a Title Company or Attorney's Office.