Mortgage Loans

Handy Reference of Terms And Definitions

We work hard to make applying for your mortgage loan as simple as possible. We understand there are many terms that may be unfamiliar to people who don't make mortgages their full-time business.

With that in mind, we've assembled this handy glossary of some of the most common terms that you may hear us use. Of course, if we've left anything out or you have any questions at all about the process, just ask us! We're here to answer your questions and help make your home buying experience easier. Apply Online Now

Common Mortgage Terms

Adjustable Rate Mortgage (ARM) - A mortgage that allows for the lender to adjust the interest rate periodically, as agreed upon at the inception of the loan and based on a specific index plus a margin.

Adjustment Period - The length of time between interest rate adjustments. An annual ARM loan would have an interest rate adjustment once each year.

Amortization Schedule - A table that shows the changes in principal of the mortgage loan balance.

Annual Percentage Rate (APR) - A calculation that allows you to compare the actual financial cost of your mortgage. It standardizes your rate to include all elements of your finance charge including interest, points, origination fees or any other "costs" that are considered a finance charge. This figure is disclosed as part of a truth-in-lending statement that is required by the Federal Truth-In-Lending Act. This rate allows you to compare loan programs. Generally the lower the APR the better, provided that you do not prepay your loan early.

Appraisal - An estimate of value.

Balloon Mortgage - A mortgage in which the payments do not fully pay off the loan and the balance of the loan is due in a lump sum at a specific date.

Commitment - A loan commitment is an agreement to lend and usually contains the terms under which the loan is approved.

Construction Mortgage - A loan in which the proceeds are used to fund the construction of improvements or building(s) on the property.

Conventional Mortgage (Conforming) - A loan that qualifies to be purchased by Fannie Mae or Freddie Mac and does not have FHA insurance, USDA insurance, state or local bond insurance or a VA Guaranty.

Credit Report - A report provided by an independent credit agency that contains certain information concerning an applicant's credit history.

Department of Housing and Urban Development - A federal agency that houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversight to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Department of Veterans Affairs (VA) - A Federal Agency whose purpose is the aid of veterans through a variety of programs.

Discount Point(s) - A charge levied by the lender to buy down the interest rate on the loan. Each "point" charged is equal to 1% of your loan amount. The financial cost of paying the "point(s)" is reflected in your APR.

Down Payment - The difference between the sales price and the mortgage loan amount is the down payment.

Escrow - Funds held by a third party on behalf of the first party to pay a second party. A mortgage servicer (third party) holds funds in escrow on behalf of the borrower (first party) to pay for taxes and/or insurance to the appropriate entities (second party) when they come due.

Fixed Rate Mortgage - A loan in which the interest rate and payment amounts are fixed for the entire term of the loan.

Good Faith Estimate - Real Estate Settlement Procedures Act (RESPA) is a Federal law that regulates the settlement practices within the real estate industry. This law required the provision of an Estimate of Closing Costs in addition to prohibiting kickbacks for referrals or related services. It also standardized the closing with a required form and format.

Gross Monthly Income - A person's income prior to deductions for taxes, insurance, etc. Net income or "take home" pay is the amount after deductions.

Jumbo Mortgage - A mortgage that is larger than the legislated purchase limits of either Freddie Mac or Fannie Mae.

Mortgagee - The lender of money which is secured by real estate.

Mortgagor - The borrower of money secured by real estate.

Mortgage Insurance - Insurance that protects the lender in case of default. Insurance can be issued by private sources or by FHA. Private Mortgage Insurance is commonly called PMI. Insurance issued by FHA is referred to as MIP.

PITI - The total mortgage payment. Principal (P) plus interest (I) plus any escrow payment for property taxes (T) and homeowners hazard and/or flood insurance (I).

POC - Any charge that is paid outside the loan closing.

Secondary Market - A market that exists for the purchase and sale of mortgages and servicing rights as commodities.

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