Frequently Used Terms (A-G)

A-credit: This is the highest FICO credit rating, and customers are rewarded for being within its range with the lowest rates.

Adjustable Rate Mortgage (ARM): These are adjustable rates that can change during the course of a loan's term. Most ARM's in the U.S. are called "indexed ARM's" and fluctuate according to an index which the lender has no control over.

Amortization: This is the decreasing of a loan's principal amount, once payment exceeds the interest. In other words, if you take the monthly payment and subtract the interest, it equals the amortization. The balance then on the loan is amortized with each scheduled payment.

Annual Percentage Rate (APR): This is the true measure of the borrower's credit cost, taking into account the time value of money, interest rates, dollar amounts, and points.

Appraisal: The professional estimate of your property value, usually done by an appraiser.

Cash-out Mortgage: A mortgage program that allows you to recieve cash back at the closing of the loan process.

Closing Costs: Along with the down payment and escrow fees, other fees and charges that the borrower must pay on the closing date.

Debt Consolidation: Gathering all long-term debts and rolling them all into a home mortgage loan or refinance.

Default: Failure of the borrower to make the monthly mortgage payments, or comply with other requirements of the mortgage.

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from discriminating against the borrower, in issues of race, gender, nationality, religion, color, or marital status.

Equity: Equity is a calculation of the value of a home: the dollar value less the outstanding balance of any loans.

FHA Loan: A loan backed by the Federal Housing Association, with a uniform, pre-set limit.

Fixed Rate Mortgage (FRM): This is a mortgage plan where the monthly payment and interest rate remain fixed throughout the term.

Float: While applying for a loan, floating is letting the rates and points fluctuate with the market, without locking them down. This can be hazardous to the borrower, who can lock the interest rate at any time.

Good Faith Estimate: A form the lender is required to give the borrower, usually three days upon receiving the loan application, detailing closing costs.

• Terms Cont'd (H-Z)