Adjustable Rate Mortgage (ARM): A mortgage with an interest that changes over time in line with movements of an index.

Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Amortized Loan: A loan that is paid off in equal installments of principal and interest rather than in interest only payments.

Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points expressed as a percentage of the loan amount).

Application Fee: A fee to cover some of the charges of the loan process.

Assumption of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to assume to the loan.

Balloon Payment: Paying off a note with a final installment, which is larger than the preceding payment.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the loan.

Conventional Mortgage: A mortgage or deed of trust not obtained under a government insured program. A loan provided by investors.

Discount Points: A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up-front interest charge to reduce the interest rate on the loan over the life, or portion, of the loan’s term. One discount point equals one percent of the loan amount.

Loan Origination Fee: Typically 1% of the loan amount, charged to buyer by lender.

Mortgage: A legal document that provides security for repayment of a promissory note.

PITI: Principal, Interest, Taxes and Insurance.

Points: Charged by the lender and paid by the buyer or seller. One point is equal to 1% of the purchase price.

Tax Service Contract: The annual service of reporting to a lender the tax amounts due and delinquent on the encumbered property during the life of the loan.

Underwriting Fee: Fee charged by a lender to underwrite the loan.

VA Funding Fee: Veteran’s Administration charge for originating the loan.

Warehouse Fee: Fee charged by the lender to hold the loan locally before selling it in the secondary mortgage market to an investor.