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Adjustable Rate Mortgage (ARM) - ARM's are stated with two numbers, such as 3/1 or 5/1. The first number represents the length of time the initial interest rate is guaranteed to remain fixed. The second number indicates how often the rate will change after the initial guaranteed time period. For example, with a 5/1 ARM the rate is fixed for the first five years, after the first five years the rate will then change every year. When the interest rate on an ARM adjusts, the new rate is calculated by a predetermined formula which is disclosed at the time of application. The most common ARM's are the 1/1, 2/1, 3/1, 5/1, 7/1 and 10/1.

Balloons - The two basic balloon programs are the 5/25 and the 7/23. Each program amortizes your payments over 30 years and initially guarantees your interest rate for the first five and seven years respectively. After the initial rate guarantee, the loan may adjust to a fixed rate for the remaining term of the loan or the loan may come due which means you will need to refinance the mortgage.

Break-Even - The break-even is the amount of time it will take to recover any initial up front costs paid to obtain a lower interest rate. For example, if you pay $1,200 at the time of closing and as a result will save $25 per month on your mortgage payment, the break-even is ($1,200 / $25) = 48 months or 4 years to "recover" the up front costs. Other factors, such as tax write offs, may affect the actual break even.

Buydown - You may buydown or prepay interest at the time of closing to receive a lower interest rate. The prepayment of interest is often called an origination fee, points or discount points. As a general rule, for every 1% of the loan amount you pay up front, the interest rate will be reduced a 1/4%.

Another type of buydown is a temporary buydown. The most common temporary buydown is the 2/1 buydown. The actual program is a 30 year fixed mortgage, but the interest rate is "temporarily bought down" 2% the first year and 1% the second year. For example, if your program is a 9.00% 2/1 buydown, the rate is 7.00% the 1st year, 8.00% the 2nd year and 9.00 % for the remaining 28 years.

Conventional Loan - A mortgage which is not insured by FHA or guaranteed by the VA.

Credit Score - Each of the three national consumer credit reporting agencies calculate a credit score for individuals with consumer debt. Credit scores are calculated using several factors, such as past payment history, number of existing debts, types of credit and credit utilization. Scores may range from 300-900, however scores above 800 are very rare.

FHA Loan - A loan insured by the Federal Housing Administration open to all qualified home owners. The basic benefits of a FHA loan is a minimum down payment and lower closing costs however, there are maximum loan limits which vary per state and county.

Fixed Rates - With a fixed rate mortgage program your rate remains at the same rate for the term of the mortgage. The most common terms are 15, 20 and 30 years.

Good Faith Estimate (GFE) - The Good Faith Estimate is a disclosure providing a detailed breakdown of the various costs, pre-paid's and monies needed for a mortgage.

Jumbo Loan - Typically, a jumbo means a loan amount above $417,000. Sometimes the interest rates for loan amounts above $417,000 may be slightly higher.

MTA - Monthly Treasury Average ARM. This loan program is a variation of the ARM mentioned above. The primary difference is that the interest rate may change each month.

No Income Verification Loan (NIV) - This is a mortgage program for a person(s) who does not wish to disclose their income. There are various combinations of this program, such as not needing to document assets or employment history. In most cases the rates or fees may be slightly higher.

Origination Fee - Commonly quoted as a percentage of the loan amount. When you pay an origination fee you are prepaying interest up front in return for a lower interest rate. For example, on a $100,000 loan with a 1% origination fee, the cost is $1,000. As a rule of thumb, a 1% origination fee will decrease the interest rate by a 1/4%. The origination fee usually varies form 0%-2%.

Points or Discount Points - Commonly quoted as a percentage of the loan amount. When you pay an origination fee you are prepaying interest up front in return for a lower interest rate. For example, on a $100,000 loan with a 1% Point, the cost is $1,000. As a rule of thumb, a 1% Point will decrease the interest rate by a 1/4%. Points usually vary from 0%-3%.

PMI - Private Mortgage Insurance is insurance borrowers pay when they have less than 20% equity in the subject property. This insurance protects the bank if the mortgage is defaulted.

Pre-Paids - Pre-paids are monies you will need at closing but are not considered closings costs. The four most common pre-paids are your real estate taxes, home owner's insurance, PMI and interest from the day you close to the end of the month.

Settlement Statement - The settlement statement, also called the Closing Statement or HUD I, is a detailed document summarizing the mortgage and real estate closing. In addition to providing you with the final funds you will need for closing, the sales price, loan amount, Realtor commissions and other real estate transaction fees are all disclosed on the settlement statement. In most cases you will receive a copy of the settlement statement one to three days prior to your closing.

No Cost Loan - With this option, we pay for all or a portion of your closing costs without increasing your loan amount to cover these costs. As a general rule the interest rate may be an 1/8% - 1/4% higher.

VA Loan - Loans guaranteed by the Department of Veterans which offer zero or minimum down payment options to qualified veterans or military persons.

100% Financing - This program allows a person(s) to purchase a home with no money down and in some cases the closing costs and pre-paids may also be financed. Typically, the interest rates are slightly higher.

The above definitions are to give you a better understanding of the most common mortgage programs and terms. The best mortgage program(s) is an individual decision and will vary depending on many variables. Besides discussing your mortgage options with one of our mortgage consultants, you may also want to consult your accountant, financial advisor or any other qualified person(s) who is familiar with your financial situation and goals.