Adjustable Rate Mortgage (ARM): The interest rate on these loans fluctuates periodically in response to changing market conditions. As the interest rate fluctuates, your mortgage payment will be adjusted up or down. Rate and payments adjust at the end of 1, 3, or 5 years, and every year thereafter. The initial rate on the one-year ARM is typically 2%–3% below fixed rate loans.

Adjustment Interval: On an ARM, the time between changes in either a monthly payment or an interest rate, usually one, three or five years, depending on the index and the terms of the specific loan program.

Annual Percentage Rate (APR): A calculation of the cost of credit, including the interest rate and finance charges such as discount points, closing costs, and mortgage insurance premiums.

Amortization: Debt reduction through regularly scheduled payments, which are calculated to pay off the loan within a specified period of time.

Application Fees: Fees taken at the time of application which may cover the cost of services, such as a credit report and appraisal, or which may be collected in addition to other changes.

Appraisal: The value on a specific property. The maximum amount of the mortgage will be based on the lesser of the sales price or the appraised value.

Assessed Value: The value of the property on which property taxes are determined.

Assumption: Assumable mortgages allow you to transfer your mortgage to the new owner of your home, if you should sell your home (provided the new owner meets the lender’s credit standards.)

Balloons: A product that offers a fixed rate with the full unpaid balance due in 5 or 7 years.

Broker: An individual who negotiates contracts or arranges funding for a client, but does not actually loan the money personally. A broker typically charges a fee for his/her service or receives a commission.

Buy-Down: A process whereby a lender or a builder subsidizes a mortgage by initially lowering the interest rate. When the subsidy terminates, the payments increase.

Caps: On an ARM, the maximum amount that the interest rate or payments may increase or decrease at the time of the adjustment. Caps benefit the consumer by setting limits for rates or payments.

Cash Out Refinance: When the principal amount of a mortgage involved in refinancing is greater than the outstanding amount owed on the mortgage being refinanced, and all or a portion of the excess amount is taken in cash.

Certificate of Eligibility: A document issued by the Veterans Administration, which verifies veterans or enlisted persons eligibility for a VA mortgage.

Closing: A meeting comprised of the lender, buyer and seller to legally exchange the property and funds (see Closing Costs.)

Closing Costs: Charges associated with purchasing property or refinancing a loan which are charged to the borrower by the lender or third parties (such as closing agents, title insurance companies, mortgage brokers, and government agencies.)

Commitment: A promise by a lender or an investor, usually in writing, to loan money with specific terms and conditions.

Contract of Sale: A contract stating terms and conditions, between buyer and seller of a property, to transfer ownership.

Conventional Loan: A real estate mortgage that adheres to conventional standards (most conform to Freddie Mac or Fannie Mae guidelines). Conventional loans are not insured or guaranteed by a federal agency.

Deed: The title of ownership to a piece of real estate.

Default: Failure to make payments on a mortgage in accordance with the payment schedule required.

Delinquency: Failure to make payments in a timely manner, which could possibly lead to foreclosure.

Discount Points: A fee charged by lenders to reduce the initial interest rate. Discount points are a percentage of the loan amount you can pay to reduce your initial interest rate. One "point" equals 1% of the loan amount.

Down Payment: The amount of money that the buyer puts towards the purchase of the property before closing.