Mortgage Loan Terms You Should Know

Adjustable Rate Mortgage - a mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

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 (APR) - An 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.

Appraisal - An estimate of the value of property, made by a qualified professional called an "appraiser".

Balloon Mortgage - A mortgage that has level monthly payments over a stated term but which provides for a lump-sum payment to be due at the end of an previously specified time (e.g., five- and seven- year balloon mortgages, where the payment is fixed for 5 or 7 years, then the remaining balance becomes due and payable at the end of the term).

Broker - A professional who does not lend money directly, but who arranges financing and contracts for a client for a fee and commission. Brokers basically bring together borrowers and lenders.

Cash-out Refinance - A transaction that provides cash proceeds to the borrower in excess of 1 percent of the mortgage amount or provides cash that is used to pay off non-mortgage debt.

Certification of Eligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Reasonable Value (CRV) - An appraisal issued by the Veterans Administration showing the property's current market value

Certificate of Veteran Status - The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing Cost - Money paid by borrowers and sellers to affect the closing of a loan. These costs usually include such items as origination fees, discount fees, title search and title insurance, survey fees, attorney's fees, appraisal fees, credit report fees, prepaid items such as taxes and insurance. Closing costs generally run from 3 percent to 6 percent of the loan amount. Most lenders generally quote a "good faith estimate" of closing costs - but it's only an estimate and almost invariably increases.

Construction Loan - A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Conventional Loan - A mortgage not insured by FHA or guaranteed by the VA.

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.

Discount Point - 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 $200,000 mortgage would cost $4,000).

Equity - the difference between the fair market value and current indebtedness, also referred to as the owner's interest.