Mortgage | Home Loan
Terminologies
Loan Types
Fixed-Rate Mortgage (FRM)
A loan with an interest rate that stays the same for the entire term.
Adjustable-Rate Mortgage (ARM)
A loan where the interest rate can change periodically, usually yearly.
Balloon Mortgage
A loan with lower monthly payments initially, ending with one large final payment.
Conventional Loan
A loan not guaranteed or insured by the government (like FHA or VA).
FHA Loan
A loan insured by the Federal Housing Administration, often for first-time buyers or those with lower credit scores.
VA Loan
A loan guaranteed by the Veterans Administration, available to eligible military veterans and active service members.
USDA Loan
A loan offered by the U.S. Department of Agriculture for buying homes in rural areas.
Jumbo Loan
A large mortgage that exceeds standard loan limits set by Fannie Mae and Freddie Mac.
Bridge Loan
A short-term loan used temporarily until permanent financing or another loan is obtained.
Reverse Mortgage
A loan for homeowners (usually seniors) to borrow money against their home's value without having to make regular payments.
Construction Loan
A short-term loan to finance the building or remodeling of a home.
Interest-Only Loan
A loan where monthly payments cover interest only for a set period, not paying down principal initially.
Loan Components
Principal
The actual amount of money borrowed in a loan.
Interest
The cost paid for borrowing money, usually expressed as a percentage.
Amortization
Spreading loan payments over time, gradually paying down both interest and principal.
Escrow
A neutral account holding funds temporarily, usually for taxes and insurance.
Down Payment
Initial upfront payment made when buying a home, typically a percentage of the total price.
Closing Costs
Fees paid at the end (closing) of a real estate transaction, including taxes, lender fees, and insurance.
Origination Fees
A fee charged by lenders to process and start your loan, typically a percentage of the loan amount.
Discount Point Fees
Fees paid upfront to lower your mortgage interest rate; one point equals 1% of your loan amount.
Prepayment Penalty
A fee charged if you pay off your loan earlier than agreed. Typically applies to business purpose loans.
Mortgage Insurance (PMI/MIP)
Insurance protecting the lender if the borrower defaults, usually required if your down payment is less than 20%.
Escrow/Impound Account
Account held by your lender to pay for taxes and insurance directly.
Loan-to-Value (LTV)
Comparison of the loan amount to the home's value, shown as a percentage.
Debt-to-Income Ratio (DTI)
Percentage of your income that goes toward paying debts each month.
Loan Process
Pre-Approval
Lender confirms your credit and finances, giving you an official estimate of loan amount.
Pre-Qualification
Lender gives an informal estimate of how much you might borrow based on basic information.
Appraisal
Professional evaluation of a home's market value.
Underwriting
Process where the lender evaluates your financial history to approve or deny your loan.
Closing (Settlement)
Final step where loan paperwork is signed, funds are exchanged, and property ownership transfers.
Rate Lock
Agreement guaranteeing a specific interest rate for a certain period while loan paperwork is processed.
Closing Disclosure
Final document provided before closing, detailing exact loan terms and costs.
Loan Estimate
Document providing an initial estimate of costs, rates, and terms within three days of applying.
Funding
Moment when loan money is transferred to finalize home purchase.
Recording
Filing official documents with local authorities, making the home purchase public record.
Clear to Close
Confirmation from lender that all conditions are met, and the loan is ready for closing.
Interest Rate Terms
Annual Percentage Rate (APR)
True yearly cost of borrowing, including fees and interest.
Basis Points (BPS)
Unit of measure for interest rates, equal to 0.01% (100 basis points = 1%).
Margin
Percentage added by lender to an adjustable-rate mortgage’s index rate to determine your interest rate.
Index
Financial indicator lenders use to set the adjustable interest rate.
Rate Adjustment Period
Frequency at which the interest rate can change in an ARM (e.g., annually).
Cap (Rate Caps)
Maximum limits set on how much the interest rate can change in an ARM.
Documents and Disclosures
Promissory Note
Document promising repayment of a loan, detailing terms and interest rate.
Mortgage/Deed of Trust
Legal document pledging your property as collateral until the loan is paid.
Title Insurance
Insurance protecting against problems related to property ownership disputes.
Lien
Legal claim placed on property securing repayment of debt.
Deed
Document legally transferring ownership of property.
Truth in Lending Act (TILA)
Law requiring clear disclosure of loan terms and costs.
Real Estate Settlement Procedures Act (RESPA)
Law ensuring transparency about closing costs and loan servicing.
Payment Terms
Amortization Schedule
Table showing how loan payments break down over time into principal and interest.
Monthly Payment
Amount paid each month towards loan repayment.
Bi-Weekly Payment
Payments made every two weeks to pay off loan faster.
Impound Account
Another term for an escrow account holding taxes and insurance.
Foreclosure and Default
Foreclosure
Legal process where lender takes ownership due to borrower’s failure to pay.
Short Sale
Selling a property for less than owed on the mortgage, with lender’s permission.
Deed-in-Lieu of Foreclosure
Voluntarily giving your home back to the lender to avoid foreclosure.
Default
Failure to make loan payments as agreed.
Miscellaneous
Refinance
Replacing your current loan with a new one, usually to reduce interest rates or monthly payments.
Cash-Out Refinance
Refinancing your loan for more than you owe to receive extra money.
Home Equity Line of Credit (HELOC)
A line of credit borrowing against home equity, similar to a credit card.
Equity
The amount your home is worth minus what you owe.
Loan Servicers
Company managing billing, payments, and escrow accounts.
Mortgage Broker
Person or company connecting borrowers and lenders.
Mortgage Banker
Company lending money directly to borrowers.
Secondary Market
Marketplace where lenders sell loans to investors.
Investor
Entity purchasing loans in the secondary market (e.g., banks or government agencies).
Government-Sponsored Enterprises (GSE)
Government-related companies like Fannie Mae or Freddie Mac, that buy and guarantee mortgages.
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