Glossary

Listed below are definitions to common mortgage related terms to help you better understand the mortgage process:

Adjustable Rate:
An interest rate that adjusts periodically based on changes in a selected index. Payments may increase or decrease accordingly.

Annual Percentage Rate (APR):
A calculation expressing the total cost of credit as a yearly percentage. It includes up-front costs (i.e. prepaid interest) and any other finance charges associated with obtaining the loan. For this reason, the APR is usually higher than the interest rate on the mortgage note. The APR should not be confused with the mortgage’s note rate, which is used to calculate the principal and interest payment.

Application:
A statement of personal and financial information that is required to start the process of obtaining a mortgage loan.

Appraisal:
An independent estimate of a property’s market value based on the sale of comparable properties in the same area. An appraisal is typically required by lenders when obtaining a mortgage loan.

Discount Points:
An amount paid at closing to lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (e.g., two points on a $100,000 mortgage would total $2,000).
 
Fixed Rate:
An interest rate that remains the same for the full term of the loan. 

Homeowners Insurance:
An insurance policy, required by the lender, which typically combines liability coverage for the homeowner with hazard insurance to protect against property damage.

PITI:
Amounts collected for Principal, Interest, Taxes and Insurance(s) that comprise the typical monthly mortgage payment.

Private Mortgage Insurance (PMI):
Insurance purchased by the borrower to protect the lender against losses if the borrower defaults. PMI is typically required when purchasing a home with less than a 20% downpayment.

Rate Lock:
A commitment provided by the lender guaranteeing a particular interest rate and/or feature for a definite time period. Provides protection against rising interest rates between the time of application and the closing of the loan.

Title Search:
Details the chain of ownership of a specific piece of property.

Title Insurance:
Protection against most financial losses resulting from problems related to the property title.

Truth-In-Lending Disclosure:
A federally required notice that provides details of costs associated with a mortgage loan. This notice includes the mortgage’s annual percentage rate (APR). The APR should not be confused with the mortgage’s note rate, which is used to calculate the payment.


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