Mortgage Terms
Adjustable-Rate Mortgage (ARM): This loan type that allows the lender to adjust the interest rate during the term of the loan. Usually changes are based on market conditions and determined by an index. Most have a rate change and lifetime cap.
Annual Percentage Rate (APR): A standard format developed by the federal government to provide an effective interest rate for comparison shopping of loans. Some closing costs are factored into the APR. Actual monthly payments are based on the periodic interest rate, not the APR.
Appraised Value: This is the property's fair-market value, based on an appraiser's knowledge and an analysis of the property, which takes into account home values in the area.
Assessed Value: The valuation is determined by a public tax assessor for taxation purposes.
Balloon Mortgage: This is a short-term fixed-rate loan with smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term.
Conventional Mortgage: A mortgage that is not insured or guaranteed by a government agency.
Convertible ARM: An adjustable-rate mortgage (ARM) that allows a borrower to convert their mortgage to a fixed-rate loan for the remainder of the loan term if certain conditions are met.
Escrow: Funds paid by one party to another to hold until a specific date when the funds are released to a designated individual.
Fixed-Rate Mortgage: A mortgage in which the monthly principal and interest payments remain the same throughout the life of the loan. The most common mortgage terms are 30 and 15 years.
Initial Interest Rate: The original, starting interest rate at the time of closing. This rate can change in the future in an adjustable-rate mortgage.
Lender Fees: Fees that are kept by the lender to cover some of their expenses and meet their profitability goals. Typically fees such as origination fees, discount points, processing/administration fees, underwriting fees, and document preparation fees are lender fees.
P&I: This is the monthly principal and interest payment required when repaying a mortgage in accordance with its terms.
PITI: Principal (P), Interest (I), Taxes (T), and Insurance (I) is a reference to the total monthly payment required to repay a mortgage in accordance with its term, as well as monthly escrow payments for taxes and insurance.
Points: Fees that are collected by the lender in exchange for a lower interest rate. Commonly called discount points, each point is equal to 1 percent of the loan amount.
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