Is a mortgage in which the interest rate is adjusted periodically based on a preselected index, such as the Libor or 1-year Treasury. Also sometimes known as the variable rate mortgage, such as 3/1, 5/1, or 7/1 ARMs.

Adjustable-rate mortgages in which rate is fixed for three-year, five-year, and seven-year periods, respectively, but may adjust annually after that.

Loan repayment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

An estimate of the value of property, made by a licensed professional appraiser.

A local tax levied against a property for a specific purpose, such as a school or infrastructure improvements.

A loan which is amortized for a specific term of the loan, but calls for repayment prior to the full amortization of the loan. An example is a 30-year amortization due in 15 years. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.

Closing costs usually 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. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

A mortgage of less than $333,701 that is not insured by or guaranteed by a government agency.

A report documenting the credit history and current status of a borrower's credit standing., including their credit score (commonly known as their FICO score).

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

In many states, this document is used in place of a mortgage to secure the payment of a note.

Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage.

When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See Negative Amortization.

Failure to make payments on time, being behind on payments; this can lead to foreclosure.

see point

Money paid to make up the difference between the purchase price and the mortgage amount.

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

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

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. A quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

A legal process by which the lender or the mortgage holder forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. Also known as homeowners insurance, but does not include Flood Insurance.

The ratio, expressed as a percentage, which results when a borrower's housing expenses (PITI, HOA, etc) are divided by his/her gross monthly income. See debt-to-income ratio.

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as Tax/Insurance Escrow.

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

The sum of the published index plus the margin. For example if the index were 7% and the margin 1.75%, the indexed rate would be 8.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.

This type of loan requires payments of only interest over a certain time period, hence no Principal is retired. This type of loan can have either a balloon payment or it may convert to an amortized loan after a specified period of time

A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (currently > $333,700 as of 1/1/2004). Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance.

The lender

The borrower or homeowner

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan. This is mainly a loan for experienced real estate owners and investors.

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

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

A legal document authorizing one person to act on behalf of another.

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

The amount of debt, not counting interest, left on a loan.

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.

The right of cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

A mortgage made subsequent to another mortgage and subordinate to the first one.

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

See closing/closing costs

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know its dimensions, and the location and dimensions of buildings and significant terrain.

A document that gives evidence of an individual's ownership of property.

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

A document verified by the borrower's employer verifying his/her position, salary, and employment status.