Mortgages Explained Glossary

In order to understand mortgage loans, you will need to be familiar with some commonly used terms. Here is a glossary of the terms every homebuyer needs to know.

• Adjustable-Rate Mortgage (ARM) - an ARM is a mortgage loan with an interest rate that fluctuates according to market conditions. Typically, an ARM has an initial fixed-rate period that lasts anywhere from one to ten years. After that, the loan resets or "adjusts," and the payment and interest rate will change periodically for the rest of the loan's term.
• Amortization - the repayment of the loan's principal from scheduled mortgage payments. As you are getting mortgages explained, you might see loans that are amortized over 30 years, for example. This means that the principal and the interest of the loan will be paid in full after 30 years.
• Annual Percentage Rate (APR) - this is the total annual cost of borrowing. The APR includes interest, charges and fees, and points. By federal law, your lender must disclose your APR in bold on your loan agreement.
• Balloon Mortgages - a mortgage loan that must be paid in full after a period that is shorter than the term. For instance, on a seven-year balloon, the loan is usually amortized over 30 years, but the balance at the end of the seventh year must be repaid in full or refinanced.
• Credit Score - a numerical representation of your credit history, which is a kind of report card on how well you repay your financial obligations. Mortgages Explained mostly deals with lenders that use the FICO score in the lending process. Developed by Fair Isaac Co., your FICO score is calculated using a mathematical algorithm based on your credit history.
• Equity - the different between the current appraised value of the home and the outstanding balance of the mortgage against it.
• Fixed-Rate Mortgage - a fixed-rate mortgage locks in an interest rate for the life of the loan. If you apply for a fixed-rate loan with one of the Mortgages Explained lenders, you will have the same interest rate and monthly payment for the duration of the loan's term. Fixed-rate loans are a good idea if you expect interest rates to rise.
• Good Faith Estimate - all Mortgages Explained lenders must give you a good faith estimate of closing costs within three business days of receiving your application. This number will estimate what you will pay in closing costs for the loan.
• Interest Rate - the money you pay beyond the principal of the loan for the convenience of borrowing.
• Mortgage - a written document providing evidence of a lien against a property taken by a lender as collateral until a loan is fully repaid.
• Prepayment - premature repayment of a mortgage or other loan.
• Refinancing - taking out a new mortgage to pay off an old one. Mortgages Explained lenders can offer refinancing loans of many kinds.
• Second Mortgage - also called a home equity loan. A secondary debt taken out against a property on which a primary mortgage already exists. Second mortgages leverage the equity a homeowner has in the home.

For other things you may be curious about, find out if they have been asked and answered in our frequently asked questions.