Mortgage Terms

At A R Home Loans Direct, Inc., we believe in educating our customers in order to make them feel more comfortable in understanding the loan process and loan details.  Below you will find a list of common mortgage related terms and definitions that we hope will make it easier for you to understand the loan process.

Accrued Interest- The amount of interest due since the last payment was posted to your account.

Adjustable Rate Mortgage (ARM)- A mortgage in which the interest rate changes periodically according to a predetermined loan program and index.

Amortization- The payment of a debt in equal installments that results in the elimination of the debt.

Amortization Schedule- A detailed list of each payment due on a loan which shows the amount applied to the principal, the amount applied to the interest, and the remaining loan balance.

Annual Percentage Rate (APR)- A percentage of the amount of the loan that represents the total cost of the loan, including the finance charges.

Appraisal- A report given by a qualified individual in which their opinion is given as to the value of a property.

Balloon Mortgage- A mortgage in which monthly payments are made for a specified period of time, at the end of which the remaining balance is due in full.

Cap- A limit on the maximum that interest rates can rise on an adjustable rate mortgage (ARM) during both a specified period of time and the life of the loan.

Closing Costs- Costs associated with obtaining a mortgage loan and/or a transfer of property.

Credit Report- A report issued by a credit reporting agency that is used by the mortgage company to determine whether a loan applicant is eligible for credit.

Escrow- A neutral third party used to carry out the wishes of the lender, seller and buyer during a real estate transaction.

Good Faith Deposit- A deposit given by the person buying the property to a third party to be held in escrow until the transaction is completed.

Judgment Lien- A judgment by the court which is placed as a lien against a property.

Margin- The percentage a lender will add to the index rate to determine the new interest rate.

Mortgage Insurance- An insurance policy that insures the lender against loss caused by the borrower’s failure to make loan payments.

Origination Fee- A fee charged by a mortgage company to cover the cost of the process of making a mortgage loan.

PITI- The acronym to Principal, Interest, Taxes (property), and Insurance (homeowner’s).

Private Mortgage Insurance (PMI)- See Mortgage Insurance.

Subordination- When a lien holder agrees to allow another lien holder to take a priority lien position.

Tax Lien- A lien against a property for unpaid taxes.  This can be Federal, State, and/or Property Taxes.

Underwriting- The analysis of risk and verification of information given on a borrower’s loan application.