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Glossary of Mortgage Terms

To understand the mortgage process, you need to know the lingo. Here are some of the terms you’ll want to be familiar with:

Amortization
Schedule of loan payments by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR)
The interest rate that reflects the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan, however all lenders do not calculate APR the same way.

Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount, i.e., one point on a $100,000 mortgage would cost $1,000.

Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-year, three-year, and five-year US Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans) which is then used to adjust the interest rate on an adjustable mortgage up or down.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Origination Fee
The fee charged by the lender for issuing a loan; usually computed as a percentage of face value of the loan.

Title Insurance
A policy usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

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