Connecticut Mortgage Glossary:

Adjustable Rate--An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Amortization--The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Annual Percentage Rate (APR)--Actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan.

Application--A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.

Appraisal--A written analysis of the estimated value of your property. It insures you are paying a fair market value for your home and is required to close on your new home or property.

Assumption of Mortgage--The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.

Balloon Payment--A lump sum payment for the unpaid balance of the loan.

Bond Loan--A state sponsored method of assisting borrowers and first-time buyers in the purchase of a home at a reduced interest rate.

Closing Costs--Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Conforming Loan--Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

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.

Credit Limit--The maximum amount that you can borrow under a home equity plan.

Debt Service--The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Delinquent--The state of being one or more months behind the loan payment schedule.

Discount Points (or Points)--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment--The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale--A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Effective Interest Rate--The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Equity--The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

First Mortgage--A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate--An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

FHA Loan--More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

Grace Period--A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income--For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Hazard Insurance--Insurance coverage that provides compensation to the insured in case of property loss or damage.

Home Equity Line of Credit--A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home.

Home Equity Loan--A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible.

Hazard Insurance--A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

Index--A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Interest Rate--The periodic charge, expressed as a percentage, for use of credit.

Jumbo Loan--A loan that exceeds the statutory size limit eligible for purchase or securitization by federal agencies other than FHA and VA.

Loan to Value Ratio (LTV)--The ratio of mortgage amount to appraised value or sales price of real property. Used by lenders to determine maximum loan amounts set by secondary market investors and/or government insuring agencies.

Lock or Lock In--A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Margin--An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Minimum Payment--The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit.

Mortgage Insurance (PMI)--Insurance that protects a mortgage lender against loss in the event of default by a borrower.

Mortgage Loan--A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Negative Amortization--Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

PITI--Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Points--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount.

Prepayment Penalty--A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

Property Tax--The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Services may include police and fire department, garbage pick up and snow removal.

Qualifying Ratios--Comparisons of a borrower's debts and gross monthly income.

Refinance--The repayment of a debt from the proceeds of a new loan using the same property as security.

Security Interest--An interest that a lender takes in the borrower's property to assure repayment of a debt.

Settlement--The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.

Title--The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance--Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Underwriting--The process of verifying data and approving a loan.

Variable Rate--An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.