Here are some terms commonly used in the mortgage industry:
ARM, or Adjustable Rate Mortgage: This is a mortgage loan that has a fixed rate for a specific period of time, say 1, 3, or 5 years, after which the rate becomes dependent on some index, such as a treasury bill rate.
Buy Down: A fee given to a lender which will either temporarily or permanently lower the interest rate on a mortgage. On purchase transactions, by downs may be offered by sellers or builders as an incentive to potential buyers, making their payments more affordable.
FICO Score: A credit score for borrowers, demonstrating their ability to obtain and manage credit over time. Lenders typically pull scores from three bureaus, Experian, Equifax, and Trans Union, and use the middle score of the three in making a lending decision.
Interest Only Mortgage: A mortgage loan where only interest is paid for a specified period of time in the first part of the loan, typically 10 years. The entire principal would then be paid over the remainder of the term of the loan.
Mortgage Broker: An entity through which mortgage lenders work to lend money to borrowers, versus a bank, which lends directly to borrowers. Brokers are able to present products from multiple lenders to borrowers.
Mortgage Insurance: When lenders lend more than 80% of the value of a property, they require mortgage insurance. This is where a third party insurer, for a premium, paid by the borrower, assumes the risk of the loan, in case of default. FHA loans incorporate mortgage insurance directly into the loan.
Prepayment Penalty: A penalty charged by a lender for early repayment of a loan, usually within the first few years. Lenders often offer lower rates to borrowers who accept these terms.