A type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The initial interest rate is fixed for a period of time and then resets periodically, often every year or even monthly.

The annual cost of a loan to a borrower expressed as a percentage. The APR includes the interest rate, points, broker fees, and certain other credit charges a borrower is required to pay.

An estimate of the current market value of a property. An appraisal is performed by a licensed professional appraiser who compares the property to recent sales of similar homes in the area.

The final step in executing a real estate transaction. This is when the title to the property is transferred from the seller to the buyer, the buyer signs the mortgage documents, and the seller receives the purchase funds.

The expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction.

A document provided to the borrower 3 days before closing outlining the final terms and costs of the mortgage.

A personal finance measure that compares an individual’s debt payments to the income they generate.

A type of prepaid interest or fees mortgage borrowers can purchase that lowers the amount of interest they have to pay on subsequent payments.

The difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

A financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction.

An account in which funds are held by a third party while two or more people complete a transaction. In a mortgage servicing context, an escrow account is typically used to pay property taxes and insurance on behalf of the borrower.

A type of mortgage that has a fixed interest rate for the entire term of the loan.

A form of property insurance that covers losses and damages to an individual’s house and assets in the home.

A document that provides a summary of the key terms and costs of a mortgage. The loan estimate is given to borrowers within three business days after they submit a mortgage application.

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

A type of prepaid interest made by the borrower upon closing of a mortgage. One point equals 1% of the loan amount.

The process by which a lender evaluates the creditworthiness of a potential borrower. Prequalification serves as a guide for the loan amount that the borrower may receive.

The components of a mortgage payment, which includes the principal balance owed on the loan, the interest charged by the lender, taxes from the government, and homeowner’s insurance.

An insurance policy that compensates lenders or investors for losses due to the default of a mortgage loan. PMI is usually required when the loan-to-value (LTV) ratio is above 80%.

A fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.

The legal right to cancel a contract within a certain period of time without penalty. In a mortgage context, this right usually applies for a period of three days after the transaction has been made.

The process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable.

A form of indemnity insurance that protects against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans.