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Mortgage Glossary

When it’s time to go house-shopping, knowing the right mortgage lingo will help you close the deal faster.

Adjustable Rate Mortgage (ARM) The type of mortgage that changes with the interest rates; monthly payments can fluctuate as determined by your lender, although it’s often subject to a cap

Annual Percentage Rate (APR) The cost of a loan calculated by its yearly interest rate which includes the interest, points, mortgage insurance, and other fees associated with the loan

Balloon Mortgage A borrower will get a low interest rate on a mortgage for an initial fixed period of time, anywhere from 5 to 10 years, and after that, the balance is due or is refinanced by the borrower

Bridge Loan A short-term loan secured through the house that’s being sold to be used toward the closing costs or construction of the new home that’s being purchased (also called a Swing Loan)

Closing Costs Another term for “more money you have to pay”; the fees not included in the price of a home that the buyer pays to cover the transfer of ownership at closing (sometimes you can cut a deal so the seller pays for these costs)

Down Payment The cash you fork out to buy a house — not what you borrow through your mortgage

Earnest Money Deposit The money offered to a seller to show you’re more serious than the next guy — if your offer is accepted, it becomes part of the down payment; if the offer is rejected, it’s returned; and if the buyer pulls out of the deal, it’s forfeited

Escrow A special account where your mortgage lender puts a portion of each monthly mortgage payment to cover expenses you’ll face, like property taxes, homeowners insurance, and mortgage insurance (even more money!)

Fixed Rate Mortgage It’s just how it sounds — the interest rate and all terms of this mortgage (so therefore the payments) stay the same over the course of the loan

Lock Interest rates fluctuate, so a lock is a guarantee by a mortgage lender promising that if you close the loan within a certain time frame, the rate won’t change

Mortgage Insurance This benefits the lender, not you, and is required if you make a down payment of less than 20 percent of the purchase price; that way, the lender is protected if you default on your loan (oh, and you have to pay for it)

Upside-Down Mortgage The value of your home has plunged to the point where you owe more to the bank than what it’s worth