Whether you are looking to purchase or refinance, it is always important to understand the vocabulary that is used throughout the entire mortgage loan process. Many of our Charlotte and Raleigh borrowers have questions about certain terms, so we decided to make a list of commonly used mortgage lingo for your use! 

• Adjustable Rate Mortgage (ARM) – is a home loan with an interest rate that can change, causing monthly payments to go up and down.
• Annual Percentage Rate (APR) – is the approximate yearly cost of borrowing money from a financial institution. APR combines the total amount of interest payable and the cost of other fees and charges, averaged over the term of the loan and expressed as a percentage.
• Amortization – refers to spreading payments over multiple periods.
• Cash-Out Refinance – is a refinancing of an existing mortgage loan, where available equity is taken out of the home and added to the current loan balance; typically used for debt consolidation or home improvement.
• Closing Costs – are the added fees paid from the borrower on the day of closing.
• Credit Report – is a detailed report of an individual’s credit history.
• Credit Score – is a number that defines an individual’s capacity to repay a loan.
• Debt Consolidation – is when a new loan is used to pay off numerous debts. This new loan combines the debts creating one monthly payment and one interest rate.
• Debt to Income Ratio (DTI) – is a way to determine the individual’s ability to manage monthly payments. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
• Down Payment – is the initial payment that is made on the home before determining the loan amount.
• Earnest Money – is the money paid to confirm a contract.
• Equity – is the value of a mortgaged property after deduction of charges against it.
• Escrow – is an account set up so the individual can pay their property taxes and insurance together and is added to the monthly mortgage payment.
• Fannie Mae and Freddie Mac – are government-sponsored enterprises (GSEs). This means that they are privately owned, but receive support from the Federal Government, and assume some public responsibilities.   
• FHA – is a type of mortgage loan that sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building.
• Fixed Rate Mortgage – A home loan with a set interest rate for the life of the loan.
• Interest Rate – is the proportion of a loan that is charged as interest to the borrower.
• Loan to Value (LTV) – expresses the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property.
• Mortgage – is a legal agreement where a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
• Mortgage Broker – is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage.
• Mortgage Insurance (MI) – is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan.
• Pre-Approval – is a letter by the lender stating that the borrower is eligible to qualify for a mortgage loan.
• Principal – is the outstanding balance of your mortgage.
• Rate Lock – is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time at the prevailing market interest rate.
• Rate/Term Refinance – is the refinancing of an existing mortgage for changing the interest and/or term of a mortgage without advancing new money on the loan.
• Refinance – to revise the terms of an existing mortgage by either shortening the term, lowering the rate or by getting cash out.
• Second mortgage – is a mortgage taken out on a property that is already mortgaged.
• Underwriting – is a sign and accept liability under, thus guaranteeing payment in case loss or damage occurs.
• USDA Loan – are zero-down-payment mortgages for rural and suburban home buyers.
• VA Loan– is a mortgage loan in the United States guaranteed by the United States Department of Veteran Affairs. The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. The loan may be issued by qualified lenders.

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