Common Mortgage Terms You Should Know

AMORTIZATION – Practice of paying off a fixed-rate loan in full over a specified period of time with equal monthly payments.

ADJUSTABLE RATE MORTGAGE (ARM) - Mortgage during which the interest rate can change at set intervals to reflect current market conditions. Monthly payments can vary up or down depending on market conditions.

ANNUAL PERCENTAGE RATE (APR) – Term used for the cost of a loan per year expressed in terms of the actual rate of interest including such charges as points, fee and other charges. The APR is an accurate way of comparing rates between lenders.

APPRAISAL - Skilled estimate of the true market value of a property.

APPRECIATION - Fluctuation in the value of a piece of property based on the capitalistic principals of supply and demand.

BI-WEEKLY MORTGAGE - Mortgage whereby the monthly payment is divided in two and one half of the payment is made every15 days. A bi-weekly mortgage pays off a mortgage much faster than a traditional monthly mortgage, saving a tremendous amount of interest over the life of the loan and allowing the borrower to own his or her home years sooner than by making traditional monthly payments.

CLOSING COSTS - Fees paid by the borrower when a mortgage loan closes and funds are transferred. Closing costs include loan origination fees, document fees, appraisal fees, title search fees, title insurance, survey, appraisal fees, points and other fees.

EQUITY - Difference between what is owed on a property and the property’s current fair-market value.

FIXED-RATE MORTGAGE - Mortgage whose interest rate and monthly payments remain constant over the life of the loan.

HOME EQUITY LINE OF CREDIT - Second mortgage, or equity credit mortgage, in which the proceeds of the loan may be drawn down in increments by the borrower as the borrower sees fit. Similar to the way a credit card works.

INTEREST-ONLY LOAN - Loan in which only the interest is paid each month and the principal remains the same. At the end of the loan the entire amount of the original loan is due and payable in one lump sum.