Mortgage Interest Rates - 14 words you should know.

ARM or Adjustable Rate Mortgage have an interest rate that can change throughout the term of the loan. Indexed ARMs are more common in the US and the rate you pay is based on a pre-selected rate. There are discretionary ARMs where the changes to rates are affected by the lender.

APR or Annual Percentage Rate is true cost of the mortgage including fees and interest. The lender is required by law under the Truth in Lending Law to disclose this figure to when you apply for a loan. The intention of the APR is to prevent lenders from advertising low rates while adding many fees.

Closing refers to final steps of buying/selling a property. The process of the seller transferring ownership to the buyer, moneys from the buyer and the buyers lender are transferred to the seller and all contracts between the sell and the buyer/lender are executed.

Co-Signer is a person who agrees to assume the mortgage if the primary applicant defaults. This may be a requirement if the primary applicant does not have established credit.

Credit report provides the lender information about how risky it is for them to lend you money. The credit report includes details about how well you have met obligations in the past. Your credit score is a number based on your credit history and used to describe your credit worthiness.

Down payment is an amount of money paid by the buyer up front and affects the loan amount. If you were to purchase a home for $100,000 and make a 20% down payment your loan amount would be $80,000.

Equity is the value of your house less any outstanding mortgages against it. If your homes value is $125,000 and you still have a mortgage with $75,000 your equity is $50,000. Equity can increase from property improvements, rising real estate prices in your location and as you repay your mortgage.

Fixed rate mortgage have an interest rate that remains current throughout the term of the loan. When interest rates are higher you may find a better deal with an adjustable rate and you may have to option to refinance when rates are more favorable for a fixed rate mortgage.

Hazard insurance or homeowners insurance is usually purchased by the borrower and is required by the lender. This protects the lenders interest in the proper in the event of fire or other disaster.

Interest rate is the rate of money the borrower pays the lender for use of the borrowed money or principle. An interest rate usually expressed as a yearly rate.

Locking in a rate is an attempt by the borrower to lock in current rate for their mortgage. This binds the lender and borrower to that rate no matter if they rise or fall before the closing date.

Points are an upfront cash amount that the lender will require. A point is usually expressed as 1% of the total loan amount. Lenders offer a variety of loans with different rate and points ratio allowing the borrower to balance larger or smaller payments with more or less up front cash.

Prepayment penalty is a penalty charge that assures the lender receives a certain amount of interest. Prepayment penalties do not exist in all mortgages. You should make sure you understand all parts of the contract you are signing.

Qualifying for mortgage involves evaluating a prospective borrowers ability to repay a loan. During this process your income, assets and other financial information is considered to determine what size loan you can get. You may qualify for the loan you want and still be denied after a credit check.