ADJUSTABLE-RATE MORTGAGE (ARM) - a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.

ADJUSTMENT INTERVAL - the period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three and five years.

ANNUAL PERCENTAGE RATE (APR) - an interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing different types of mortgages based on the annual cost for each loan.

APPRAISAL - an estimate of the value of a property, made by a qualified licensed professional appraiser.

BALLOON (PAYMENT) MORTGAGE - usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

CAPS - ceilings for adjustable-rate mortgages that limit the amount monthly payments can increase; or rates can rise. An interest rate cap limits the amount interest can increase, while a payment cap limits the increase in monthly payment to a determined dollar amount.

CLOSING - meeting between the buyer, seller and lender, (or their agents) and the lawyer or title company, where the property and funds legally change hands. Also called settlement.

CLOSING COSTS - costs and fees associated with the legal change in ownership of the property; and finalizing your mortgage. Closing costs include required certifications, insurance, taxes and other fees. The total costs are generally between 3 and 6 percent of the mortgage amount.

CREDIT REPORT - report that profiles a borrower's credit history; loans, credit cards and other debt and payment history plus the current status. Borrowers can examine their own credit reports, although most credit reporting companies charge a fee to provide a report.

DEBT-TO-INCOME RATIO - ratio, expressed as a percentage, found by dividing monthly long term debt payments (payoff greater than one year) by gross monthly income, or in the case of (FHA/VA loans), net effective income.

DOWN PAYMENT- amount paid in cash to the seller when you purchase your home. The down payment is the difference between the purchase price and the mortgage amount, normally 10 to 20 percent of the purchase price. Many loans are now available with smaller down payments.

EARNEST MONEY DEPOSIT- money given with the offer to purchase a house as a good faith deposit. If your offer is accepted, becomes part of your down payment.

EQUITY- difference between the fair market value of the property and current outstanding balance you owe.

ESCROW - special account set up by the lender in which money is held to pay for taxes and insurance. "Escrow" can also refer to a third party who carries out the instructions of both the buyer and seller and completes the paperwork at the closing.

FHA (FEDERAL HOUSING ADMINISTRATION) MORTGAGE- loan insured by the Federal Housing Administration. FHA mortgages require lower down payments than conventional mortgages, and also feature less stringent income and financial requirements.

FIXED-RATE MORTGAGE - mortgage with an interest rate that is constant for the life of the loan. The most common fixed-rate mortgage is repaid over a 30 years; 15 year fixed-rate mortgages are also available.

INDEX - economic indicator, generally a published interest rate that is used to determine changes in the interest rate on an ARM. ARM rates are adjusted at fixed periods to reflect changes in the index. An amount is added to the index to establish the actual interest rate on an ARM. This added amount is called a MARGIN.

INTEREST - the sum paid for borrowing money, which pays the lender's costs of doing business plus a profit.

LOAN ORIGINATION FEE - fee charged by a lender to prepare the documents for your mortgage.

LOAN-TO-VALUE RATIO - relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

MORTGAGE INSURANCE - insurance policy the borrower buys to protect the lender in the event of non-payment of the loan. Private mortgage insurance policies are usually required if you make a down payment that is below 20% of the appraised value of the property.

PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) - four components that, for many mortgages, are included in the monthly mortgage payment. Principal and interest are the parts of the payment which repay the mortgage; taxes and insurance are put into a special escrow account by your lender, to pay for homeowners insurance and property taxes.

POINTS (LOAN DISCOUNT POINTS) - prepaid interest on a mortgage that is paid at the time of closing. Each point is equal to one percent of the total amount of a mortgage (one point on a $100,000 mortgage is $1,000, or 1 percent of 100,000). The lower the interest rate, the more points you will pay at closing.

PRINCIPAL - mortgage loan payments consist of both interest and principal payments. Most of your mortgage payment goes to pay down the interest, a small amount pays down the principal. As the loan ages more of the payment goes to the paying the principal and less to the interest. Amount of loan, not including interest. The face amount of the mortgage.

TITLE INSURANCE - insurance policy which insures against errors in the title search, essentially guaranteeing you and your lender's financial interest in the property.

UNDERWRITING - process of approving or rejecting a loan based on credit, employment, assets and other factors of the borrowers.

VA MORTGAGE (DEPARTMENT OF VETERANS AFFAIRS) - government insured loans guaranteed by the Department of Veterans Affairs, requiring very low or no down payments. They have more lenient requirements for qualification. They are available only to veterans of the armed services, those currently on active duty or in the reserves, and their spouses.