Mortgage Glossary
Understanding mortgage terminology made simple
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on market conditions.
Amortization
The gradual repayment of a mortgage loan through regular payments of principal and interest.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage expressed as a percentage, including interest and fees.
Appraisal
A professional estimate of a property's market value.
Appreciation
An increase in a property's value over time.
Balloon Mortgage
A mortgage with small monthly payments and a large final payment.
Basis Point
One-hundredth of one percent (0.01%).
Bridge Loan
A short-term loan used to 'bridge' the gap between buying a new home and selling an existing one.
Broker
A licensed professional who arranges mortgage loans between lenders and borrowers.
Cap
A limit on how much an ARM's interest rate or payment can increase.
Cash-Out Refinance
Refinancing for more than the amount owed to take cash out.
Closing Costs
Fees charged to complete a mortgage transaction.
Collateral
Property pledged as security for a loan.
Conventional Loan
A mortgage not guaranteed by a government agency.
Credit Report
A detailed report of an individual's credit history.
Credit Score
A numerical rating of creditworthiness based on credit history.
Title
Legal right to property ownership, including the right to use and dispose of the property.
Title Insurance
Insurance that protects the lender and/or owner against losses arising from disputes over property ownership or defects in the title.
Truth in Lending
Federal law requiring lenders to provide detailed disclosures about loan costs and terms to borrowers, ensuring transparency in lending practices.
Underwriting
The detailed process of evaluating a loan application to determine the risk and whether to approve the loan, including assessment of credit, income, and assets.
Underwater Mortgage
A situation where the loan balance exceeds the current market value of the property, also known as negative equity.
USDA Loan
A government-backed mortgage program guaranteed by the U.S. Department of Agriculture, offering 100% financing for eligible rural properties to qualified borrowers.
VA Loan
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, offering benefits like no down payment and no mortgage insurance to eligible veterans, active duty military, and surviving spouses.
Variance
Legal permission to deviate from current zoning requirements or land use regulations, which may affect property value and use.
Verification of Employment (VOE)
A document or form completed by an employer confirming a loan applicant's employment status, salary, and length of employment.
Wraparound Mortgage
A type of secondary financing where a new mortgage incorporates the remaining balance of the existing loan, typically used when the original mortgage cannot be paid off or refinanced.