Mortgage Glossary

Adjustable-rate mortgage (ARM): The mortgage-payment rate and loan payments vary. With these mortgages, interest rates start lower than with a fixed-rate mortgage, but then become variable. At specific intervals (typically every year), a lender adjusts the rate up or down as interest rates fluctuate.

Annual percentage rate (APR): The annual cost of a mortgage. APR is the base interest rate plus points, fees, and other loan costs.

Closing cost: Charges a home buyer pays in addition to a down payment. Fees may include points and charges for credit reports, appraisals, prorated property taxes, and homeowner’s insurance.

Finance charge: Interest borrowers pay over the life of a loan.

Fixed-rate mortgage: The mortgage-payment rate and loan payments remain fixed for the life of a loan. Interest rates do not vary.

Lock-in: Borrowers get a guaranteed interest rate (in effect at the time of the loan application) for a specific period of time.

Mortgage: A legal contract that pledges a property as security for a loan.

Mortgage broker: Companies that work with a number of banks and lenders to negotiate lower interest rates than available to individuals. They are usually paid a commission by the lender and charge the borrower a broker’s fee.

Mortgage payment: The loan payments for a mortgage are composed of interest (what the lender charges for borrowing money) and principal (amount borrowed).

Private mortgage insurance (PMI): Buyers pay this insurance if their down payments are less than 20% of a home’s purchase price (on a conventional mortgage loan).

Points: Fees borrowers pay to reduce interest rates. A point is 1% of a loan amount.

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Choosing a mortgage company | Search for a local mortgage company | Different types of mortgages | Mortgage glossary

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