Adjustable Rate Mortgage (ARM)

This is a type of mortgage loan in which the interest rate periodically changes according to terms and conditions specified in a mortgage note. The changing interest rate is based upon the upward and downward movement of an index, such as the current U.S. Treasury Securities, and a fixed margin above that index.

Annual Percentage Rate (APR)

A stated interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees, and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone.


An estimate of the value of a property, made by a state licensed professional appraiser.


The meeting between the buyer, seller, and lender (or their agents) where the property and funds legally change hands; also called settlement.

Closing Costs (Settlement Costs)

The costs and fees associated with the purchase or refinance of your property, and with obtaining your mortgage that are assessed at the closing. Among other items, closing costs include required certifications, insurance, taxes and other fees, and typically total between 3 and 6 percent of the mortgage amount.

Credit Report

A report containing detailed information on a person’s credit history, including identifying information, credit accounts and loans, bankruptcies, late payments and recent inquiries. It can be obtained by prospective lenders, with the borrower’s permission, to determine his or her creditworthiness.


The value of your home after the outstanding balance of any secured loans is subtracted.


A special account set up by the lender in which money is held to pay for taxes and insurance. “Escrow” can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

Fixed Rate Mortgage

The interest rate on this type of mortgage agreement stays the same for as long as you hold your mortgage, no matter how interest rates change in the financial markets. With this type of mortgage, you know exactly how much you will pay in principal and interest on your home each month.

Homeowner’s (Hazard) Insurance

An insurance policy that protects your home and your possessions inside from serious loss, such as theft or fire. This insurance is usually required by all lenders and must be obtained before closing your loan.


The sum paid for borrowing money, which pays the lender’s costs of doing business.

Loan Origination Fee

A fee charged to the borrower by the lender for making a mortgage loan.

Points (Loan Discount Points)

Points are prepaid interest on your mortgage, charged by the lender at the time of the closing. Each point is one percent of the loan amount. For example, one point on a $150,000 loan would equal $1,500.


The expenses that are put into escrow at closing, usually including real estate taxes, insurance and interest.


The amount of debt, not including interest, left on a loan; also the face amount of the mortgage.

Private Mortgage Insurance (PMI)

An insurance policy the borrower buys to protect the lender from non-payment of a conventional loan. Private mortgage insurance policies are usually required if you make a down payment that is below 20% of the purchase price or appraised value of the home. The same insurance protection on an FHA loan is called Mortgage Insurance Premium (MIP).


A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Title Insurance

An insurance policy which insures you and the lender against errors in the title search — essentially guaranteeing you own the property and can give a mortgage to the lender.


The process of deciding whether to make a loan based on credit, employment, assets, and other factors.