Glossary of Mortgage Terms

Can I qualify for a mortgage? What does it take to get a good interest rate? What does ARM, FRM, and APR stand for? So many questions come to mind when you are considering applying for a mortgage to buy your first home. Particularly when mortgage resources are using thousands of different jargons and abbreviations to describe mortgages, it can become very difficult to make sense out of the information. This article provides many of the most commonly used terms you will read and hear during your quest to obtain a mortgage to finance the purchase of your home, along with descriptive information to make sense of it all. Accrued Interest - Interest that has grown on a loan or mortgage that has not yet been paid for. It has “accrued”. On a loan that you have paid $500 worth of interest, and the total interest was $2000, then the accrued interest is $1500. ARM – Stands for Adjustable Rate Mortgage. An ARM is a mortgage that does not have an interest rate set in stone. The interest rate will change over the course of the loan. Adjustment Cap - A limit within the life of the mortgage for the amount and degree of changes that can be made to your mortgage interest rate. Amortization – A listing that shows each payment of a debt in monthly installments. Each payment includes monies paid for both the interest on the loan and the principal balance (the amount borrowed). Equity – The amount of money you’ve paid on a mortgage that is over the amount of the lien. If the mortgage amount is $150,000 and there is a lien on $75,000 of it, your equity is $75,000. FICO – Stands for “Fair Issac Company”. This company created the mathematical method of scoring your credit based on your history of repaying debt. Interest - The amount of money charged by a lender when you borrow money. Lien - A claim against property. The bank or mortgage company usually holds a lien on the property that was mortgaged. If you are unable to pay your loan, the mortgage company gains ownership and possession of the house and property. Mortgage - A document that indicates the lien on the property, the holder of the loan, and the purchaser obligated to make payments. Also a term used to describe the money that is actually borrowed to purchase the home. Payment Schedule - A document that clearly describes how the payments on the mortgage will be made, how much the payments are, the dates the payments are due, the amount of money that is sent to principal and the amount sent to interest. Principal - The total amount of a mortgage, before interest. The total amount of money borrowed. Promissory Note - A written document that bounds seller and borrower to the terms described in the document. It is a document that states the promise of the buyer to repay the debt. Refinance (REFI) – The act of taking out another loan or mortgage to pay off existing debt. Satisfaction - The full payment of all outstanding funds.