If you’re looking to buy or refinance a home, sometimes the various terms used by your lender and/or real estate agent can be confusing. The following definitions have been prepared to help you better understand the terms commonly used in the mortgage process.

Adjustable Rate Mortgage (ARM)
A mortgage loan with an interest rate that is initially fixed, then periodically adjusts to current market rates dependent on the index tied to the loan. These loan programs have the potential for reestablishing less-than-perfect credit if payments are made as agreed upon or you plan on keeping your home for a short period of time.

Appraisal
An estimate of the value of a property performed by a certified appraiser.

Annual Percentage Rate (APR)
The total finance charges for a loan, including interest, fees and charges expressed as an annual rate.

Fixed Rate Mortgage
A mortgage in which the buyer contracts for a specified interest rate over a specific period of time, such as 15, 20, or 30 years. The principal and interest payment does not vary; however, the escrowed portion of the payment may change due to changes in taxes or homeowner’s insurance.

Pre Approval
A preliminary review by a mortgage lender of an individual’s credit by which the lender has conditionally offered to provide a specific loan amount to the borrower.

Private Mortgage Insurance (PMI)
Insurance to protect the lender in the event the borrower defaults on the loan. Paid by the borrower, PMI is required when a borrower obtains a loan with less than a 20% down payment, or 20% equity in the case of a refinance.




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