Adjustable Rate Mortgage (ARM): A mortgage where you have agreed that your interest rate can be adjusted at specified intervals using a formula based on the federal prime rate.

Amortize: This means to gradually pay off a loan with regular payments. Part of each payment is applied to your "principal" ( the amount you actually borrowed) and part is applied to "interest." Get an amortization schedule from your lender to see the real picture!

Annual Percentage Rate (APR): The interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal: This usually reflects market conditions and determines sales price. An appraisal is sometimes confused with assessment, which is the basis used by local governments to determine your proper taxes. The assessment on your house will usually be much lower than the appraisal.

Balloon Mortgage: This is a mortgage with monthly payments which are insufficient to amortize the loan. A balloon—or lump sum payment—is due at the end of the term. Balloon mortgages frequently contain a provision to refinance when the balloon payment is due.

Bridging Loan: A temporary loan that lets you buy a new home before completing the sale of your existing home.

Cap: A ceiling that limits how much the interest rate on your adjustable rate mortgage loan (ARM) may be adjusted. There are periodic caps, which limit how much your loan may be adjusted in one period, and a lifetime cap, which limits how much your loan may be adjusted over the life of the loan.

Cash Reserves: The amount of cash you will have left after a home purchase or refinance. This your safety net; most lenders like to see at least two month's housing expense in the bank (this can be stocks or bonds).

Closing costs: These are costs related to the financing and title transfer of real estate. They include expenses such as points, taxes, title insurance, mortgage insurance, commissions and fees.

Commitment: An agreement, often in writing between a lender and a borrower to loan money at a future date after completion of paperwork or compliance with stated conditions.

Completion: The point at which the money to buy your new home is released to the seller; ownership is transferred to you and you can then move in.

Conventional Loan: Loan that usually carries a low interest rate and requires from 10% to 20% of the loan amount as a down payment, as opposed to an FHA or VA loan, which usually requires zero to 5%.

Credit Report: A report explaining a borrower's credit history and current debt payment obligation.

Debt-To-Income Ratio: Borrower's total monthly payments on debt divided by gross monthly income. This ratio is used to figure how much one can borrow for a home.

Deed: The legal instrument which transfers ownership from the seller to the buyer when the loan "closes." Copies of all deeds are in the Hamilton County Registrar's Office.

Down Payment: Money paid to make up the difference between the purchase price and the mortgage loan amount. Down payments usually 5% to 20% of the sale price on conventional loans.

Equity: The difference between the actual value of your home and what you owe on your mortgage loans. "Equity" is the cash you would put in your pocket if you sold the home; in other words, it is that part of the house that you own, not the bank.

Escrow: An account held by the lender into which you pay money for tax or insurance payments on your house. Your escrow payments are usually combined into your house payment.

Federal Housing Administration (FHA): The agency of the federal government which insures first mortgage lenders against loss. The FHA does not lend money; it only insures the loan. FHA loans were designed for people with modest incomes; required down payment is usually 5% or less.

Fee: Any charge added to a loan. Some you must pay in cash up front, while some are "wrapped"" into the loan and become part of what you borrow—and pay interest on! Be wary of fees you don't understand.

Fixed Rate Mortgage: A mortgage on which the interest rate is set permanently for the entire term of the loan. Your monthly payment will remain the same no matter how the economy changes.

Flipping: A gimmick used by predatory lenders whereby they convince the borrower to refinance a loan in a short period of time to get additional fees.

Freehold: The term used to indicate ownership of property and the land on which it stands, where both belong to the owner indefinately.

Gross Monthly Income: the total amount the borrower brings into the household per month, before any expenses or taxes are deducted.

Interest: The charge for borrowing money based on a certain percentage of the total borrowed. Learn all you can about the interest rate—and how it's figured—before taking out any loan!

Investor: A company that buys mortgages from other companies. Investors ultimately purchase most mortgages. They collect your payments and service your loan.

Kickback: Money reward given to an agency or person for referring a customer.

Loan to Value Ratio (LTV): The relationship between your loan amount and the value of the property expressed as a percentage.

Lock: Borrower's particular interest rate at a certain time during the loan process guaranteed by the lender. This is called "locking" your rate. Once the rate is locked, the lender cannot change the rate and neither can you.

Market Value: The most likely price you would get if you sold your house. The market value will vary depending on changes in your neighborhood and the economy.

Mortgage Insurance: Mortgage insurance protects the lender in case of default by the borrower. It is required on most loans with under 20% down payment and the cost is usually born by the borrower. When the borrower's equity in the property equals 20%, he or she may request cancellation of the mortgage insurance premium.

Negative Amortization: Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original loan amount. The benefit is that your initial payments are lower.

Origination fee: An origination fee is charged by a lender for the labor involved in making a real estate loan, and is usually 1.5% to 2% of the loan amount.

Padded closing costs: Charging more than the actual—or usual—costs of the fees necessary to close the deal .... one of the many ways predatory lenders cheat unwary citizens.

PITI: Principal, Interest, Taxes, and Insurance.... Your total monthly housing payment.

Points (Loan Discount Points): Fee charged by lender to lower the interest rate. Each point is equal to 1% of the loan amount (e.g., two points on a $70,000 mortgage would cost $1,400).

Pre-approval: When you get a lender's written approval to make a loan prior to finding an appropriate property. This is much more convincing to a seller than a "prequalification" (see below).

Predatory Lender: Sub-prime lenders who mislead and cheat elderly and other vulnerable homeowners who are refinancing or getting a second mortgage. These bold and unscrupulous loan sharks are expert at targeting people with marred credit or low cash reserves, who may not be knowledgeable about hidden costs and other terms of the mortgage.

Prepayment Penalty: A fee charged by a lender if you pay your loan off early, generally to make up for interest the lender anticipated earning—but will not—as a re$ult of the payoff. Not all loans have a prepayment penalty. Sometimes a loan will have an optional prepayment penalty in exchange for a lower rate or fee.

Pre-qualification: The process whereby a lender reviews your qualifications and renders an opinion as to whether or not you get a loan—and how much. Contrast with "preapproval" above.

Principal: Actual money borrowed, not including interest.

Private Mortgage Insurance (PMI): May be required by your lender if the loan you apply for cannot be granted because the loan does not meet the normal standards for the lender. The most common reason for this monthly fee is a down payment smaller than 20%. This insurance protects the lender from loss if the borrower defaults. It does not protect the borrower, though it may allow the borrower to qualify for a loan he/she could not otherwise get. This insurance will require an initial premium payment of .5% to 2% of your mortgage amount plus an additional monthly fee, depending on your loan structure.

Ratios, or Qualifying Ratios: How your total housing expenses compare to your total gross income; also, how your total housing expenses—plus all other debt—compares to your total gross income.

Subprime lender: Mortgage or finance companies that loan to people with less than A- credit for a higher interest rate and higher fees. Some of these companies engage in practices that cheat unwary and vulnerable borrowers.

Three Day Right of Rescission: The three day period during which a borrower has may change his/her mind and cancel a refinance or second mortgage on the home. The transactions must ho under 25K.

Title: A document that gives evidence of an individual's ownership of property.

Title Insurance: A policy, usually issued by a title insurance company, which insures you against errors in the title search. The cost of the policy is based on the value of the property and is often split between the buyer and the seller.

Title Search:A review of all recorded documents pertaining to a specific piece of real estate to determine the present legal ownership and debts on the property and discover any defects in the title. Title insurance insures against loss resulting from title problems.