ADJUSTABLE RATE MORTGAGE (ARM): The interest rate on this type of mortgage is adjusted up or down depending on a specified financial index.

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AGENT: Acts on behalf of another, representing that person’s interests and serving as an intermediary

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AMORTIZATION: Used in describing paying off the loan balance – A method of equalizing the monthly mortgage payments over the life of the loan, even though the proration of principal to interest changes over time. Generally, in the beginning of the loan term the portion of principal repayment is very small and interest repayment is very high. Typically, that relationship is reversed at the end of the mortgage term

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ANNUAL PERCENTAGE RATE (APR): The actual finance charge for a loan, including the points and loan fees in addition to the stated interest rate

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APPRAISAL: An experts judgment of the value of a property

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ASSUMPTION MORTGAGE: Loan type where the Buyer assumes liability for an existing mortgage note held by the Seller. This is usually subject to the lender’s approval.

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ASSESSED VALUE: The value placed on a property by a municipality for tax purposes. The assessed value can vary greatly from the appraised or market value

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BALLOON PAYMENT: A large principal payment due all at once at the end of some loan terms

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BROKER: A real estate professional who has a higher level of training than a real estate agent. The Principal Broker generally is the legal representative of the office

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CAP: The limit on how much an interest rate can change in an Adjustable Rate Mortgage (ARM)

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CLOSING DISCLOSURE: What was once two forms, the Truth in Lending Statement and the HUD-1, has become a combined document. The Closing Disclosure Form (CD) discloses to the borrower an estimate of the annual cost of the loan AND the total cost of the loan over the full term – including all costs and fees associated with obtaining the loan. It also outlines all charges being assessed to both the buyer and the seller.

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COMMISSION: A fee, usually a percentage of the transaction, paid to a broker for services performed

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CONDOMINIUM: A type of real estate ownership where the owner has title to a specific unit and shared interest in common areas

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CONTRACT: A binding legal agreement between two or more parties that delineates the conditions for the exchange of value (Example: Money exchanged for title to a property)

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CONVERSION CLAUSE: A provision that allows converting an ARM to a fixed-rate loan after a specified interval

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DEED: A legal document that formally conveys ownership of property from Seller to Buyer

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ESCROW: A fund or account held by a third-party until conditions of a contract are met

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FANNIE MAE AND FREDDIE MAC: Privately owned corporations created by Congress that buy mortgage notes from local lenders and are responsible for the guidelines a majority of lenders use to qualify borrowers

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FINANCE CHARGE: The total cost, including all fees, points, and interest payments a borrower pays to obtain credit

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FIXED RATE MORTGAGE: Interest rates on this mortgage type remain the same over the life of the loan term

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FIXTURE: A recognizable entity (kitchen cabinet, toilet, light) that is permanently attached to property and belongs to the property when it is sold

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HAZARD INSURANCE: Compensates for damage from specified hazards such as fire and wind

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HOME INSPECTION REPORT: Prepared by a qualified inspector, this report evaluates a properties mechanical , electrical, and plumbing systems

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INTEREST: The cost of borrowing money – usually expressed and a percentage over time

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LIEN: A secondary claim on property until a debt is satisfied

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LISTING AGREEMENT: A contract whereby an owner engages a real estate agent for a specified period to sell property, for which the agent receives a commission

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MARKET VALUE: The price that is established by present economic conditions, location, and general trends

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MARKET PRICE: The actual price at which a property sold

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MORTGAGE: Security claim by a lender against property until the debt is paid

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MRIS: A system that provides to its members detailed information about properties for sale

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NEGATIVE AMORTIZATION: A method of calculating fixed monthly payments in combination with a variable interest rate. When monthly payments are not enough to cover interest costs, unpaid interest is added to the principal balance

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ORIGINIATION FEE: An application fee for a processing the mortgage loan

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PITI: Principal, Interest, Taxes, and Insurance. The sum becomes the basis for monthly mortgage payments

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POINT: One percent of the loan principal. It is charged typically in addition to interest and fees

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PREPAYMENT PENALTY: A fee paid by a borrower who pays off the loan before it is due

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PREQUALIFICATION: Information estimate of how much financing a potential borrower might expect to obtain. The prequalification is done before you begin looking at properties

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PRINCIPAL: Amount of money borrowed for which interest is charged

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PRORATE: Divide or assess proportionately. For example, real estate taxes will be prorated on your Closing Disclosure through the day of settlement

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SETTLEMENT: All financial transactions required to complete contract performance / obligations

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TITLE: The document that indicates ownership of a specific property

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TITLE INSURANCE: Insurance policy that protects against loss from defects in title. Title insurance is paid for an effective as of settlement

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TITLE SEARCH: Detailed examination of the entire Title document history to make sure there are no encumbrances