Mortgage Glossary

Adjustable-rate loans - also known
as variable-rate loans, usually offer
a lower initial interest rate than
fixed-rate loans. The interest rate
fluctuates over the life of the loan
based on market conditions, but
the loan agreement generally
sets maximum and minimum
rates. When interest rates rise,
generally so do your loan payments;
and when interest rates
fall, your monthly payments may
be lowered.

Annual percentage rate (APR)-
is the cost of credit expressed as
a yearly rate. The APR includes
the interest rate, points, broker
fees, and certain other credit
charges that the borrower is
required to pay.

Conventional loans - mortgage
loans other than those insured or
guaranteed by a government
agency such as the FHA (Federal
Housing Administration), the
VA (Veterans Administration), or
the Rural Development Services
(formerly know as Farmers
Home Administration, or FmHA).
Escrow is the holding of money or
documents by a neutral third
party prior to closing. It can also
be an account held by the lender
(or servicer) into which homeowner
pays money for taxes and
insurance.

Fixed-rate loans - generally have
repayment terms of 15, 20, or 30
years. Both the interest rate and
the monthly payments (for
principal and interest) stay the
same during the life of the loan.
The interest rate is the cost of
borrowing money expressed as a
percentage rate. Interest rates
can change because of market
conditions.

Loan Origination Fees -

fees charged by lender for processing
the loan and often expressed as percentage of the loan amount.

Lock-in - refers to written agreement
guaranteeing a home buyer a
specific interest rate on a home
loan provided that the loan is
closed within a certain period of
time, such as 60 or 90 days.
Often the agreement also
specifies the number of points to
be paid at closing.

Mortgage - a document signed by
a borrower when a home loan is
made that gives the lender a
right to take possession of the
property if the borrower fails to
pay off on the loan.

Overages - the difference between
the lowest available price and
any higher price that the home
buyer agrees to pay for the loan.
Loan officers and brokers are
often allowed to keep some or all
of difference as extra compensation.

Points - fees paid to the lender for
the loan. One point equals 1
percent of the loan amount.
Points are usually paid in cash at
closing. In some cases, the
money needed to pay points can
be borrowed, but doing so will
increase the loan amount and
the total costs.

Private Mortgage Insurance (PMI)
protects the lender against a loss
if a borrower defaults on the
loan. It is usually required for
loans in which the down payment
is less than 20 percent of the
sales price or, in a refinancing,
when the amount financed is
greater than 80 percent of the
appraised value.

Thrift Institution - a general term for
savings banks and savings and
loan associations.

Transaction, settlement, or closing
costs may include application
fees; title examination, abstract
of title, title insurance, and
property survey fees; fees for
preparing deeds, mortgages, and
settlement documents; attorneys’
fees; recording fees; and notary,
appraisal, and credit report fees.
Under the Real Estate Settlement
Procedures Act, the
borrower receives a good faith
estimate of closing costs at the
time of application or within three
days of application. The good
faith estimate lists each expected
cost either as an amount or a
range.