Glossary of Mortgage Terms

Below is a listing of common terms used when discussing mortgage loans.

Adjustable Rate Mortgage (ARM)

Mortgage in which the rate of interest is adjusted at regular intervals based on a standard rate index. Most ARM's have a cap on how much the rate may increase.


The process through which the mortgage debt is altered, usually declining, as payments are made to the lender. "Negative-amortization" occurs when monthly payments are too small to cover either the principle or interest reductions.

Annual Percentage Rate (APR)

The rate of interest to be paid on a loan projected lifel sometimes referred to as the "true" rate of interest.


A professional evaluation of the value of a home or other piece of property. It is often required by the lender.

Balloon Mortgage

A real estate loan in which some portion of the debt will remain unpaid at the end of the tem of the loan. A balloon will usually result in a single large payment due when the loan ends.


A limit on how much a mortgage interest rate may increase or decrease for an adjustable rate mortgage.

Conventional Mortgage

A home loan that follows a fixed rate.

Debt-To-Income Ratio

A ratio used by lending institutions to determine whether a person is qualified for a mortgage. Debt-to-income is the total amount of debt, including credit cards and other loans, divided by the total gross monthly income.


Failure to pay the mortgage payments over a specified period of time.

Discount Points

A percentage of the mortgage paid to the lender to lower the interest rate on a loan. One point equals one percent of the mortgage.


The difference between the market value of a house and the amount still owed on the mortgage.


Money and documents deposited in a trust account to be held by one party for another. Often used by brokers to hold deposit money prior to closing. Also used by lenders to hold money for taxes and insurance on a home.

FHA Loan

A loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines for mortgages.

Loan-To-Value Ratio (LTV)

The amount of the loan divided by the purchase price of the house. If a refinance, the loan is divded by appraised value.


A set number of percentage points a lender adds to the index to determine the interest rate for an ARM.

Mortgage Insurance (MI)

Insurace designed to cover the lender should the borrower default on the loan. Depending on the lender, this may be required by the lender.


PITI stands for principal, interest, taxes and insurance - the components of the monthly housing expense. Principal - the portion of the monthly payment that is used to reduce the loan balance. Interest is the fee charged for borrowing money. Taxes refere to the property taxes paid by the homeowner. Insurance refers to homeowner's insurance - insurance purchased by the borrower and required by the lender, to protect the property against loss from fire and other hazards. Taxes and Insurance that are included in the monthly monthly mortgage payment are held in an Escrow account by the lender who then pays the full amount when they come due.


An interest fee charged by the lender. One point is equal to one percent of the mortgage. The use of points allow the borrower to buy up or down his permanent interest rate.

Prepayment Penalty

A fee imposed on a borrower who pays off a mortgage before it is due.


A process by which a potential homebuyer qualifies for a home mortgage before making an offer on a house. A lending institution agrees to make a loan in a specified amount to the person it has pre-qualified.


The amount of the loan.

Second Mortgage

An additional mortgage on a property. It often carries a shorter term and a higher interest rate than the original mortgage.

Title Company

A company that searches for titles and insurance claims. Your loan will close at a title company.

Truth In Lending Act

A federal law that requires lenders to reveal all the terms of the mortgage.

VA Loan

A loan guaranteed by the Veterans Administration. To obtain a VA loan, the borrower must have served in the Armed Forces.


U.S. Department of Housing and Urban Development (HUD)

Federal Trade Comission (FTC)

U.S. Department of Veteran Affairs (VA)

Federal Reserve Board (FRB) consumer information subsection

Making Homes Affordable

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Fannie Mae America’s largest supplier of conventional home mortgage funds. Since its beginning in 1968, Fannie Mae has helped more than 30 million families achieve the dream of homeownership.

Freddie Mac A shareholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders. Since its inception, Freddie Mac has been involved in the financing of one out of every six homes in America.

HUD The Department of Housing and Urban Development. HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination.

VA The official homepage for the Department of Veterans Affairs, providing benefits and other services to veterans, their families and beneficiaries.

USDA The United States Department of Agriculture supports the growth of rural areas. 100% financing with no monthly mortgage insurance is available in eligible areas.

Mortgage Bankers Assoc. The preeminent association representing the real estate finance industry. National organization providing news concerning the banking industry.

The National Association of Mortgage Brokers A national, non-profit organization dedicated to the improvement of the mortgage broker industry.

National Association of Realtors Help in finding a Realtor, home or Lender, with news for Realtors and the general public.

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Quick Facts


Q: What are discount points?

A: Lenders generally charge discount points for the following purposes. 1 discount point equals 1 percent of the loan amount. Discount points are used to lower the interest rate. The discount fee is normally charged as a line item on your HUD or settlement statement at the time of closing.

Q What is the purpose of a credit report?

A: An important key point a loan officer considers when helping you decide which lender/program is best for you is to view your credit. The purpose of this report is to pull your credit history from each of the three major credit-reporting agencies: Equifax, Experian, and Trans Union. Your lender is required to use outside companies to acquire your credit report, as they are impartial to the findings on your credit report.

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