Mortgage Terminology

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TERMINOLOGY

Adjustable Rate Mortgage (ARM) – A mortgage loan with an interest rate that adjusts periodically, based on the movement of a pre-selected market index.

Amortization – A repayment plan that includes regular, consistent payments of principal and interest over the course of the loan.

Closing Costs – All the fees associated with a real estate transaction, excluding the purchase price.

Conventional Loan – A mortgage loan that is not insured by government agencies like the FHA or VA.

Debt-to-Income Ratio – The percentage of a borrower's monthly income that is used to repay debts. This ratio helps lenders determine how large of a mortgage a borrower can afford.

Down Payment – The amount of money a borrower contribute upfront on a real estate purchase.

Fixed Rate Mortgage – Home loans with fully-amortized payment schedules. The interest rate and monthly payment amount remain constant for the life of the loan.

Jumbo Mortgage – A loan amount that exceeds the limits set by government-backed companies Fannie Mae and Freddie Mac.

Points – A fee paid to buy down the interest rate. One point is equal to one percent of the loan amount.

Private Mortgage Insurance – Insurance paid by the borrower to protect the lender on loans with a down payment of less than 20 percent.