Mortgage Glossary

• Adjustable-rate mortgage (ARM) - an Arizona mortgage with an interest rate that changes periodically based on the fluctuations of a specified index.
• Amortization - the repayment of a mortgage loan in monthly installments that cover principal and interest.
• Annual percentage rate (APR) - the cost of a Phoenix area mortgage expressed as a yearly rate. APR includes expenses such as interest, mortgage insurance, and loan origination fees (points).
• Balloon mortgage - a mortgage that has level monthly payments that will amortize the loan over a specified term but also requires a lump-sum payment at the end of an earlier specified term.
• Cash-out refinance - an Arizona mortgage loan with a balance that exceeds the amount due on the borrower’s existing mortgage. The borrower then takes the difference in cash to use for any purpose.
• Conforming loan - a mortgage loan of less than $417,000.
• Construction loan - a short-term loan for financing construction costs. The lender makes payments to the builder periodically as the work progresses.
• Down payment - the portion of a property’s purchase price that the buyer pays in cash and does not finance with a mortgage loan.
• Equity - a homeowner’s financial interest in a property. Equity is the difference between the present market value of a property and the outstanding balance on its mortgage.
• Escrow - an item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For instance, the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of Phoenix, Tucson, Flagstaff, Scottsdale, or other Arizona real estate.
• FHA mortgage - a mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
• Fixed-rate mortgage - an Arizona mortgage with an interest rate that never changes during the term of the loan.
• Home equity loan - a loan secured by a second deed of trust on a home.
• Jumbo loan - a mortgage for an amount greater than $417,000.
• Loan to value (LTV) ratio - the ratio of the amount of the loan to the appraised value of the property.
• Mortgage - a legal document that pledges a property to a lender as security for payment of a debt.
• Origination fee - a fee charged by a lender to cover the processing expenses associated with issuing a real estate loan. Typically expressed as a percentage of the loan amount.
• PITI - principal, interest, taxes, and insurance—the four components of a monthly mortgage payment.
• Principal - amount of debt excluding interest. The face value of a note or Arizona mortgage.
• Private mortgage insurance (PMI) - insurance provided by non-government insurers that protects lenders against loss if a borrower defaults on a loan. Most lenders require PMI for mortgages with a loan to value (LTV) ratio of more than 80%.
• Rate - the annual interest rate on a loan.
• Refinancing - the process of paying off one loan with the proceeds from a new loan using the same property as security.
• Stated income loan - an Arizona mortgage loan that requires applicants only to state their income without providing supporting documentation, such as pay stubs or tax returns.
• Term - the life of a loan or the amount of time a borrower has to repay the obligation.
• Title - document proving the right to possession of land.
• Truth in Lending Act - federal legislation that requires the disclosure of credit terms using a standard format. The purpose of the legislation is to facilitate comparisons between the lending terms of different financial institutions.