Descriptions of different types of mortgages

Home Buying Glossary

Adjustable Rate Mortgage (ARM)

This is a mortgage interest rate that changes up or down during the course of the year.

Annual Percentage Rate (APR)

This is the interest rate that includes everything that you, the buyer, have financed and is a percentage rate that is usually slightly higher than your interest rate on the actual loan.

Assumable

Some loans are transferable from one owner to the new owner with same interest rates through the same lender.

Balloon Payment

Some loans or mortgages that you can get are interest only during the term of the loan. At the end of the loan a large lump-sum payment for the principal of the loan is due.

Cap

On some variable rate mortgages there is a defined limit on how the rate of interest percentage can go. This is the cap.

Closing Cost

These are the total charges that are associated with buying your home. They can include items such as appraisal fee, tax fees, title recording fees, and any loan fees.

Contingency

This is when a buyer puts a clause into the offer/contract that the purchase of the new home is contingent on the sale of the buyers present home.

Earnest Money

The money that you the buyer gives to the real estate professional that indicates your good faith effort in trying to purchase the home. It becomes part of the total purchase price of the home as money already paid and is held in escrow until closing.

Escrow

This is a third party who holds money or documentation during the closing (I.e. earnest money) or a third party who holds fee’s during the course of the loan (I.e. property taxes).

Index

This is the rate that is being used for interest rates charge on your loan. The Index is the interest rate number that is published as a guideline.

Interest rate

This is the percentage of interest rate that is being charged on the loan by the lender for lending you the money.

Loan Origination Fee

This is a fee that the mortgage company or lender charge for doing the paperwork on a loan application.

Mortgage Insurance Premium (MIP)

This is money paid by you, the buyer, to get the financing.

Point(s)

This is money paid usually by the buyer to the lender to get a better interest rate on the loan and in some cases to even obtain the loan. A point is one percent of the total mortgage amount financed. Points can be used in different ways for example a buyer can pay points to lower the interest rate of their mortgage.

Pre-Approved

You have determined with a mortgage professional the price of home you can financial afford and all credit verification, employment verification, and debt verification have been completed by the mortgage professional.

Pre-Qualified

You have determined with a mortgage professional the price of home you can financial afford. They are basing figures on verbal confirmation from the buyer what they can afford for the mortgage amount.

Title Insurance

This protects the buyer (the insured) against any claims or liens against the title during closing.

There are many more terms related to buying, selling and financing real estate. A good source of information is The Federal Reserve http://www.federalreserve.gov/pubs/HomeLine/glossary.htm. Another great site for terms in the real estate world is The Mortgage Professor http://www.mtgprofessor.com/.