Mortgage Terms Made Easy: Confused about the terminology used by home-finance professionals? Use this easy to follow guide and learn the lingo! One more way Chase Home Finance makes buying a home a simple and worry-free experience.


Amortize:

Amortize means to pay off a loan with regular payments. Part of each payment is applied to principal and to interest.

Adjustable Rate Mortgage (ARM):

A mortgage that permits the lender to adjust the interest rate periodically based on the movement of a specified index.

Appraisal:

An appraisal is a report that evaluates the condition and value of a property.

Annual Percentage Rate (APR):

The cost of your credit as a yearly interest rate (not the same as the note rate).

Balloon Mortgage:

A mortgage that has level monthly payments, which are insufficient to amortize the loan so that a balloon, or lump sum payment is due at the end of the term. Frequently, balloon mortgages contain an opportunity to refinance when the balloon payment is due.

Cap Adjustment:

An adjustment cap is the most your interest rate can be increased or decreased each time your adjustable rate mortgage (ARM) is adjusted.

Cap Lifetime:

A lifetime cap, or ceiling, is the maximum rate your adjustable rate mortgage (ARM) loan can reach over the entire term of the loan.

Closing:

The final procedure in which documents are executed and/or recorded, and the sale or loan is completed.

Closing Costs:

Closing costs are mortgage-related expenses incidental to the financing of real estate. They include expenses such as points, taxes, title insurance, mortgage insurance, and attorney?s fees.

Conventional Loan:

A loan underwritten according to guidelines established by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) or a private investor and insured, if necessary, by a private mortgage insurance company.

Deed:

A deed is an instrument that transfers ownership from the seller to the buyer upon sale.

Down Payment:

Cash portion paid by a buyer from his/her own funds, as opposed to that portion of the purchase price which is financed.

Escrow Funds:

Money held by the lender for payment of the taxes and insurance on your home.

Federal Housing Administration (FHA):

An agency of the federal government that insures first mortgage lenders against loss.

FHA Loan:

Loans insured by the FHA and underwritten according to their guidelines.

Fannie Mae:

Federal National Mortgage Association (FNMA). An entity that purchases first mortgages from commercial banks, savings and loans, and mortgage bankers.

Freddie Mac:

Federal Home Loan Mortgage Corporation (FHLMC). An entity that purchases first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.

Fully Assumable Mortgage:

A mortgage that can be transferred from one owner to another qualified borrower without an increase in interest rate.

Index ARM:

The index is the base rate used to determine the interest rate of an adjustable-rate mortgage. The index is specified in the mortgage note. The index rate, plus a margin, also identified in the note, equals the total interest rate charged.

Interest:

Interest is the finance charge paid to a lender when money is borrowed. Interest is figured as a percentage on the total amount borrowed.

Margin:

The margin is the rate percentage a lender adds to the index rate to determine the new interest rate on an adjustable-rate mortgage.

Mortgage/Deed of Trust:

An instrument executed by an owner of property, pledging that property as security for payment of a debt.

Mortgage Insurance:

Mortgage Insurance protects the lender in case of borrower default. It is required on many loans. The cost may be paid by the borrower or lender.

Negative Amortization:

A portion of interest that is not covered by your monthly payments and is added to the principal balance and increases the amount you owe the lender.

Origination Fee:

A fee charged by a lender for making a real estate loan, usually a percentage of the loan amount such as one percent.

Points/Discount:

A point (or discount point) is equal to one percent of the amount of your loan. Example: On a $100,000 loan, one point =- $1,000. Points typically reduce the interest rate charged on the mortgage.

Prepayment:

Prepayment means paying off all or part of the mortgage loan before it is due. Most mortgages allow prepayment, but some charge a fee if you pay ahead of schedule.

Principal:

The principal is the amount of money borrowed. It is also the base on which interest is figured. Usually, each mortgage payment pays off some principal along with interest.

Survey:

A survey is mapping, or measurement of land that shows its location and dimensions. It also shows the location and dimensions of any buildings on that land.

Title & Title Insurance:

Evidence of right to ownership of land. Title Insurance insures against loss resulting from title problems or issues relating to a specific piece of real property.

Title Search:

A review of all recorded documents affecting a specific piece of property to determine the present status of title.

Veterans Administration:

The Veterans Administration (VA) is an agency of the federal government that guarantees the lender against loss on loans made to eligible veterans in the event of foreclosure.

VA Funding Fee:

A fee charged to the veteran by the VA for the guarantee of the loan.

VA Loan:

A loan to an eligible veteran that is guaranteed by the VA and underwritten according to their guidelines.