Adjustable rate mortgage (ARM) Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Amortization  Means loan payment by equal periodic payment 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.) Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal The Process of developing and communicating an opinion about a property's value. An appraisal is typically required when real property is sold. The appraisal is an estimate of value made by a qualified licensed professional called an "appraiser".

Closing The consumation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price. Simply, The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.

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 typically 3 percent to 6 percent of the mortgage amount.

Conventional loan A mortgage not insured by FHA or guaranteed by the VA.
Credit Report A report documenting the credit history and current status of a borrower's credit standing.

Debt-to-Income Ratio 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.

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

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment FHA loan A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA insured home loans ($252,890 as of 5/17/06 in the Atlanta Metropolitan Statistical Area), Outside the Atlanta MSA the limit is ($200,160 as of 1/1/06) 

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

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

Origination Fee 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.

Points (loan discount points) 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).

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

Private Mortgage Insurance (PMI) In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 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.

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

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

Underwriting 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.

VA Loan A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.