Adjustable Rate: An interest rate that varies over time. Payments will be adjusted along with the rate.

Amortization: The distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. Amortization is chiefly used in loan repayments (a common example being a mortgage) and in sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end.

Annual Membership: An annual fee charged for having a line of credit. Also called a "participation fee."

Annual Percentage Rate (APR): An expression of the effective interest rate that will be paid on a loan, taking into account one-time fees and standardizing the way this rate is expressed. The APR is likely to differ from the "note rate" or "headline rate" advertised by the lender. The aim of using APR is to calculate a total cost of borrowing which allows easy comparison between loans and lenders.

Application: An initial statement of personal and financial information which is required to approve your loan.

Application Fee: Fees that are paid upon application.

Appraisal: The act of estimating the monetary value of real, personal, or intangible property, usually performed as a service by someone recognized as an expert or certified by an organization or government agency. In the case of House appraisal, it is usually required before the approval of a loan.

Assumption of Mortgage: The purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist. The seller remains liable to the mortgage lender (whether the lender is a commercial bank, thrift, credit union, mortgage banker or mortgage broker) unless the lender agrees to release him.

Balloon Payment: A lump sum payment for the unpaid balance of the loan. A balloon loan is one in which monthly payments are made for a set amount of time, and then a lump sum is due for the remaining balance of the loan.

Cap: The maximum amount an interest rate or monthly payment can change, either at adjustment time or over the life of the mortgage. Typically adjustable rate loans have annual and lifetime caps.

Cash Out: Receiving money back when refinancing your present mortgage.

Ceiling: The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Closing Costs: The total costs of completing the transfer of ownership of the property, other than the purchase price. Typical closing costs include charges for obtaining the mortgage loan such as an origination fee, discount points, appraisal fee, survey, title insurance, legal fees, fees for real estate professionals, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer’s closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller’s closing costs is 3 to 9 percent.

Conforming Loan: Technically a loan that meets bank funding criteria. Practically, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Contract of Sale: The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Credit Limit: The maximum amount that you can borrow under a home equity plan.

Debt Service: The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Deed of Trust: Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Discount Points (or Points): The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment: The money paid from the buyer to the lender at the time of closing, and is the difference between the sales price and the mortgage loan. Most lenders require the down payment to be paid from the buyer's own funds.

Due on Sale: A term or condition in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

Effective Interest Rate: The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance: A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equity: The value of the property, less the loan balance and any outstanding liens or other debts against the property.

First Mortgage: The mortgage that has first claim in the event of default.

Fixed Rate: An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

FHA Loan: More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

Good Faith Estimate: A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Grace Period: A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income: For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Home Equity Line of Credit: A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan: A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Hazard Insurance: A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

HUD I Settlement Statement: Also known as the "settlement sheet," it itemizes all closing costs, and must be given to the borrower at or before closing.

Index: A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Interest Rate: The amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Jumbo Loan: Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.

Loan to Value Ratio (LTV): A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock or Lock In: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Margin: An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Minimum Payment: The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.

Mortgage Broker: A firm that originates and processes loans for a number of lenders.

Mortgage Insurance (MIP or PMI): a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.

Mortgage Loan: A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgagee: The lender in a mortgage loan transaction.

Mortgagor: The borrower in a mortgage loan transaction.

Negative Amortization: Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

PITI: Principal, interest, taxes and insurance, which comprise your monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Prepayment Penalty: A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

Qualifying Ratios: Comparisons of a borrower's debts and gross monthly income.

Right to Rescission: The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Security Interest: An interest that a lender takes in the borrower's property to assure repayment of a debt.

Servicing a Loan: The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Title: The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance: >Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Transaction Fee: >A fee which may be charged each time you draw on a home equity credit line.

Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

Variable Rate: An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

VA Loan: More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.