Amortization
A payment plan that allows the borrower to eliminate the debt gradually usually by monthly payments that includes both the principal and interest.

Appraisal
A formal analysis by a professional appraiser estimating the market value of a home as of a specific time period.

Adjustable-Rate-Mortgage (ARM)
A type of loan in which the interests rate is tied to a short term economic index published by the Government (such as one year Treasury Bills) and fluctuates up or down depending on economic conditions. Typically, ARMs have a lower starting interest rate than fixed-rate loans and annual caps on the amount the interest rate can be increased both annually and over the term of the loan.

Closing Costs
The miscellaneous fees and expenses that are paid by either the seller or the buyer at the time of closing on a property. May also be called "settlement costs".

Equity
The current market value of the property less any indebtedness against it.

Escrow
The deposit of money, paperwork, and instructions necessary to complete a real estate purchase with a neutral third party. After all the terms of the purchase contract have been satisfied, the property can be legally transferred and the escrow account is officially closed.

Fixed Rate Mortgage
A mortgage in which the interest rate is fixed over the life of the loan. In other words, the amount of principal and interest payments will be the same month after month until the loan is paid off.

Impound Accounts
An account established by the lender to cover the future costs of property taxes, homeowner's insurance, and potentially mortgage insurance. Money are typically collected monthly at the same time the mortgage payment is due.

Leverage
The use of a small down payment of cash and borrowing the balance to purchase a home. The home can be foreclosed on if the borrower fails to make the required monthly payments or satisfy all the terms of the mortgage

Mortgage
Commonly referred to as a home loan. A lien on the home is created as security in case the lender needs to foreclose on the loan because the new homeowner fails to repay the loan as agreed to by the terms of the mortgage.

Mortgage Broker
Someone who finds a lender for the buyer, for a fee, and helps with the processing of the loan application.

Origination Fee
A fee charged by a lender for granting a loan to the homebuyer. The fee is typically referred to as "points" and are paid at the time of closing. A point is one percent of the loan amount.

PITI
An abbreviation for Principal-Interest-Taxes-and Insurance. These four components may be lumped together in a monthly mortgage payment.

Pre-payment Penalty
A charge assessed by the lender for paying off the mortgage before it is due. While the charge is illegal in many states, it is usually advisable to not borrow from a lender with prepayment penalties.

Real Estate Broker
A state licensed individual who acts as an agent usually of the seller of the home. Typically, a real estate broker is paid a commission at the time of the closing of the home sale that is expressed as a percentage of the purchase price. The broker is legally required to put the seller's interest ahead of those of the buyer unless the broker is acting as the buyer's broker.

Refinancing
To pay off an existing mortgage with a new mortgage, usually with a lower interest rate.