Glossary of Terms

Click here for a complete description of any financial term – or – use the quick lookup below for the most commonly used terms.

Amortization

Repayment of your loan amount through regular payments of both principal and interest, calculated to pay off the loan after a fixed period of time

Annual Percentage Rate (APR)

Charges imposed on the borrower to obtain a mortgage, expressed on an annualized basis as an interest rate.  It includes the interest rate, loan fees and points

Closing

The time at which loan documents and funds are signed and delivered to finalize the funding of a loan.  Sometimes called a settlement

Closing Costs

Expenses incurred to finance a home loan and/or transfer ownership of real estate

Co-Signer

Person who agrees to make loan payments, if you cannot fulfill your financial commitment

Down Payment

Cash paid by the home buyer towards the partial payment of a home’s sales price

Fannie Mae

Federal National Mortgage Association.  A government-sponsored private corporation that buys home loans from lenders and sells them to investors

F H A

Federal Housing Administration.  An agency within the Department of Housing and Urban Development that provides mortgage insurance for home loans and sets standards for construction and underwriting

Negative Amortization

Increase in the unpaid loan balance created when monthly payments do not cover both principal and interest and unpaid interest is added to the principal balance

Points

Upfront fee lenders charge to reduce an interest rate.  Each point typically equals 1 percentage point of the total amount of the loan

Prepayment Penalty

Fee borrowers pay if they pay off a loan during the early years of its term

Principal

The original amount of money borrowed, not including interest owed