The definition of mortgage in a dictionary.

There are a lot of unfamiliar terms that get tossed around during the home buying process. But don't worry, we've put together this mortgage glossary to help you get a better grasp of any terms that may be less than clear.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan.  Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.


A loan repayment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal and interest.

Annual Percentage Rate (APR)

To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.


An analysis performed by a qualified individual to determine the estimated value of a home.


A process that allows a borrower to obtain a lower interest rate on a mortgage by paying points to a lender.  A temporary buydown will reduce the interest rate paid during the first few years of the loan.  A permanent buydown reduces the interest rate over the entire life of the loan.

Closing Costs

The total of all the items that must be paid at closing related to your new mortgage. Closing costs are made up of individual closing cost items such as origination fees, escrow fees, underwriting fees and processing fees. Most closing cost items are included as numbered items on the HUD-1 Settlement Statement.

Contract of Sale

The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.


A condition that must be met before a contract is legally binding.  For example, a lender's commitment to provide financing to a borrower may be contingent on receipt of an acceptable appraisal.


A breech of the agreement with a lender such as the failure to make loan payments in a timely manner.


The failure to make payments on debts when they are due. The loan is not yet default.

Earnest Money

A sum of cash paid to a seller by a buyer prior to the closing to show that the buyer is serious about buying the house.  The earnest money is deducted from the purchase price at closing and is not an additional cost.  Sometimes referred to as a binder deposit.


An owner's financial position in a property.  Equity is the difference between the property's value and the amount that is owed on mortgages.


Funds paid by one party to another to hold until a specific date when the funds are released to a designated individual.  Generally, an escrow account refers to the funds a mortgagor pays to the lender along with their principal and interest payments for the payment of real estate taxes and hazard insurance.  This is also referred to as impounds.  The money is held by the lender to make payments when they are due.

An escrow can also refer to funds that are held by a third party to ensure the completion of repairs or improvements that must be completed on the property but that cannot be done prior to closing.

Fixed Rate Mortgage

A mortgage in which the monthly principal and interest payments remain the same throughout the life of the loan.  The most common mortgage terms are 30 and 15 years.  With a 30-year fixed rate mortgage your monthly payments are lower than they would be on a 15 year fixed rate, but the 15 year loan allows you to repay your loan twice as fast and save more than half the total interest costs.

Homeowner’s Insurance

Insurance that protects a homeowner against the cost of damages to property caused by fire, windstorms, and other common hazards. Also referred to as hazard insurance.


A home inspection is performed by a qualified home inspector to determine the structural soundness and condition of the home, at the request of a purchaser, seller, or lender. The inspector will provide a report outlining the condition of the home and what repairs, if any, are necessary before the loan may be closed.


Fees that are collected by the lender in exchange for a lower interest rate.  Commonly called discount points, each point is equal to 1% of the loan amount.  For our comparison purposes, a discount point is considered to be a lender fee.  To determine if it is wise to pay discount points to obtain a lower rate, you must compare the up-front cost of the points to the monthly savings that result from obtaining the lower rate


Procedure to determine how much money a potential homebuyer will be eligible to borrow prior to actually applying for a loan.

Private Mortgage Insurance (PMI)

Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults.  The cost of the insurance is usually paid by the borrower and is most often required if the loan amount is more than 80% of the home's value.  Sometimes referred to as mortgage insurance.

Property Tax

Taxes based on the assessed value of the home, paid by the homeowner for community services such as schools, public works, and other costs of local government. Sometimes paid as a part of the monthly mortgage payment.


A legal document establishing a person’s lawful possession of a property. At the time of a home sale, the title passes from the seller to the buyer and the lender who is providing the buyer's home loan. The buyer gets the title when their home loan is paid back in full.

Title Company

A company that specializes in examining titles to real estate and issuing title insurance.

Title Insurance

An insurance policy that protects the lender (and sometimes the property owner as well) against loss due to disputes over the ownership of a property and defects in the title that were not found in the search of the public record. For our comparison purposes, the title insurance cost is considered to be a third party fee.


Detailed process of evaluating a borrower's loan application to determine the risk involved for the lender. Underwriting usually involves an in-depth analysis of the borrower's credit history, as well as an examination of the value and quality of the subject property.

Need a new set of wheels?

Rivermark offers competitive Auto Loans to help you get on the road. Don't wait – start your journey with us today!

Learn about Auto Loans