This list of mortgage and mortgage refinance terms is not all-inclusive, but is intended to give you a solid understanding of terms you'll likely encounter when refinancing your mortgage.

A

A-Credit - A mortgage risk category / term used by lenders to describe a borrower with the best credit rating. Borrowers with this level of credit usually qualify for better loans at lower rates. For most lenders, the A-credit bracket is a FICO score of 720 or higher.

Adjustable Rate Mortgage (ARM) - The ARM is a mortgage loan with an interest rate that changes at some point in the future. The point at which the interest rate changes is known as the adjustment period.

Agreement of Sale - A contract signed by buyer and seller stating the terms under which the home will be sold. Usually includes the sale price, who will pay what fees, etc. Also referred to as a contract or purchase agreement.

A-Minus - A mortgage risk category between prime and sub-prime (but closer to prime). Also referred to as "A minus". Also referred to as Alt-A.

Amortization - Each time you make a mortgage payment, part of the payment will applied to the principal and part will be applied to the interest. Over time the interest portion of the payment will decrease (as the loan balance decreases), and the amount applied to principal will increases. In this fashion, the loan will be paid off (or amortized) in the specified time.

Amortization Schedule - A table or chart that shows how much of each payment will be applied to the loan's principal, and how much will be applied to the interest.

Annual Percentage Rate (APR) - The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. The APR is often slightly higher than the published interest rate because it takes into account the financing of closing costs or pre-paid percentage points.

Application - The form used to apply for a mortgage loan. The mortgage application contains information about your income, assets, debts and more.

B

Balloon Loans - A type of loan where the regular monthly payments are followed by a lump sum or "balloon" payment of the total remaining balance.

C

Cap - The maximum amount an interest rate or monthly payment may increase, either at adjustment time or over the life of the mortgage. Adjustable rate mortgages (ARMs) usually have both annual and lifetime caps. Also known as a Rate Cap.

Cash Reserve - Cash that is sometimes required to be held in reserve in addition to the down payment and closing costs. The amount is determined by the lender.

Closing - The official transfer of property ownership from seller to buyer. It usually happens in the form of a formal meeting between the buyer, seller, settlement agent, and the buyer's and seller's agents. At closing, the buyer will sign the mortgage, the seller will receive payment for the property, and the buyer and/or seller will pay the closing costs. Also referred to as Settlement.

Closing Costs - The total costs of completing the transfer of ownership of the property, other than the purchase price. Closing costs usually include fees for loan origination, home appraisal, survey and real estate agent's commission. They may also include prepayment of taxes and insurance, and real estate transfer taxes. Closing costs usually amount to about 2 to 4 percent of the purchase price of the home.

Conventional Mortgage - Any mortgage that's not insured or guaranteed by the federal government.

Credit Bureau - A credit-reporting agency that gives financial information about potential borrowers to lenders. Currently, there are three companies that maintain national credit-reporting databases: Equifax, Experian, and Trans Union.

Credit Report - A report provided by credit bureaus containing information about a borrower's credit history. Basically, it's a report card of how you've paid your credit card debt and other loans over the years (as well as how much debt you currently have).

Credit Score - A computer-generated score used to determine how likely a person is to repay a loan. Your credit score is based on your credit report. Lenders use this score to analyze your credit report and to determine your credit worthiness.

D

Debt-to-Income Ratio - Also known as debt-to-earnings ratio. A ratio (expressed as a percentage) calculated by dividing gross monthly debt by gross monthly income. Debt-to-income is one of the key factors lenders will look at when considering your credit worthiness.

Default - Failure to meet the legal obligations of a contract. In the case of home buying, failure to make the monthly payments on a mortgage.

Down Payment - The money paid by the buyer to the lender at the time of the closing. Because it's paid in advance, this portion of the purchase price is not part of the mortgage loan. Smaller down payments (those less than the standard 20 percent) usually require mortgage insurance.

E

Earnest Money - Money given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money becomes part of the down payment if the offer is accepted, gets returned to the buyer if the offer is rejected, or is forfeited if the buyer backs out of the deal.

Escrow - Also "escrow account." Funds set aside and held by a neutral third party, usually for payment of taxes and insurance.

F

Fair Credit Reporting Act - A set of rules that governs the activities of credit bureaus and controls the release of confidential information by those bureaus.

Fannie Mae - The Federal National Mortgage Association, a tax-paying corporation created by the U.S. Congress that buys and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. By purchasing mortgages, Fannie Mae increases the availability and affordability of home loans for low- and middle-income Americans.

First Mortgage - The first mortgage is the primary lien against the property. In other words, the first mortgage has first claim in the event of default.

Fixed-Rate Mortgage - A mortgage with payments that stay the same during the entire life of the loan. The loan's interest rate is fixed and will not fluctuate with market changes.

Foreclosure - The legal process that allows the lender to recover and sell a property after the owner has defaulted on the loan (failed to make mortgage payment). Sometimes referred to as Repossession of Property.

Freddie Mac - The Federal Home Loan Mortgage Corporation. A private corporation created by Congress to support the secondary mortgage market by purchasing residential mortgages, securitizing them, and selling them to investors. By purchasing mortgages, Freddie Mac increases the availability and affordability of home loans for low- and middle-income Americans. Similar to Fannie Mae, defined previously.

H

Homestead Credit - A state-sponsored property-tax credit program (only available in some states); reduces property taxes for eligible households. Ask your agent if your state offers such a program. Also known as Homestead Exemption.

L

Late Payment Charge - A penalty the homeowner pays when a mortgage payment is late. Late charges vary by state, type of loan, etc., but often run 5% of the payment amount (e.g., the late charge on a $1,000 payment might be $50).

Lock-In - A written guarantee from a lender that the buyer will receive a specific interest rate for a specific period of time. Also known as Rate Lock and Rate Lock-In.

M

Market Value - The amount that a seller may expect to obtain in the open market, based on current market conditions and recent comparable sales. An appraised value is an estimate of the current fair market value.

Mortgage - A financial agreement between a lender and a buyer in which the property is used as collateral for the loan. A mortgage gives the lender the right to collect payments on the loan (and to foreclose on the property if those payments are not made).

Mortgage Broker - An individual or company that offers loans to borrowers and is paid a commission for their services.

Mortgage Insurance - Insurance purchased by the buyer to protect the lender in the event of default. Mortgage insurance is usually required on loans with less than 20 percent down payment. The cost of mortgage insurance is usually rolled into the monthly mortgage payment. When mortgage insurance is obtained through a private company (not from the federal government), it's also known as Private Mortgage Insurance or PMI.

Mortgage Interest Deduction - A tax deduction based on the interest cost of a mortgage. Mortgage interest on a primary residence is usually fully tax-deductible.

Mortgage Note - A legal document that obligates the borrower to repay the loan (for a mortgage in this case).

Mortgagee - The lender in a mortgage agreement.

Mortgagor - The borrower in a mortgage agreement.

O

Origination Fee - A fee charged by the lender to cover the administrative costs of making the mortgage. This fee is paid during closing (or "settlement") and varies with the lender and type of loan. Origination fees of 1 to 2 percent of the mortgage are common.

Owner Financing - A purchase in which the seller acts as a lender, providing all or part of the financing for the buyer.

P

Payment Cap - A limit on how much an adjustable rate mortgage (ARM) payment may increase during the life of the loan.

PITI - Principal, interest, (property) taxes, and insurance. The typical components of a mortgage payment.

Points - Points are sometimes paid at closing as a way to lower the monthly payment interest rate. Paying points may be a wise option if you plan on living in the home for more than a few years. One point is equal to 1 percent of the loan amount (for example, two points on a $100,000 mortgage equals $2,000). Also known as Discount Points.

Pre-approval - The process of applying for a loan and gaining approval for a certain amount before having an actual purchase agreement.

Prepayment Penalty - A fee charged to a homeowner who repays a mortgage debt early (before the due date).

Principal - The actual amount of money borrowed, not counting interest. The part of the monthly payment that actually reduces the remaining balance of a mortgage.

Purchase Offer - A detailed, written document that makes an offer to purchase a property. The offer may be modified, or "amended," several times during the course of negotiations. When the offer is signed by all parties involved, it becomes a legally binding contract. Also known as the Offer or Contract.

Q

Qualifying Ratios - Guidelines used by lenders to determine if a borrower can qualify for a mortgage. The lender will consider the borrower's income and current debt, as well as the size of loan the borrower is trying to obtain.

R

Refinancing - The act of paying down an old mortgage loan with a new mortgage loan, usually to obtain a lower interest rate or to take cash out of the home's equity.

S

Second Mortgage - A mortgage obtained after another mortgage and subordinate to the first. "Subordinate" meaning that in the event of default, the lender of the second mortgage gets paid after the lender of the first mortgage. As a result of their "subordinate" nature, secondary mortgage loans are riskier for the lender and therefore bring a higher interest rate.

Settlement Statement - A document required by the Real Estate Settlement Procedures Act (RESPA). An itemized statement of charges that must be paid at closing or settlement. The buyer has the right to examine the settlement statement one day before the closing. Also known as a Closing Statement or a HUD-1 Settlement Statement.

T

Truth-in-Lending - A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan (usually within three days of loan application). It also requires the lender to fully disclose all terms and conditions of the loan. The information provided by the lender is referred to as the Truth-in-Lending Statement.

U