Adjustable Rate Mortgage (ARM)-Adjustable rate mortgages are called ARMS for short. The interest rate is changed periodically in accordance with the loan agreement. The interest rate is calculated by adding a margin to a specific index.

Annual Percentage Rate (APR)- The real cost that you pay to borrow, stated as a yearly percentage of the loan amount. For mortgage loans, closing costs and discount points are added to calculate APR.

Appraisal- The process of estimating the fair market value. Appraisers often use the comparable sales method that incorporates recent sales data of comparable homes. They may also use the replacement method, which is the cost to replace the home at today's prices.

Balloon- A mortgage in which the final payment due is a lump sum of the remaining principal at the end of the term of the loan. Some balloon mortgages allow the borrower to extend the term of the loan on the maturity date. The interest rate is adjusted based on the index disclosed to the borrower on the closing date of the original loan.

Amortization- The gradual reduction of loan principal as a loan is repaid, with an increasing amount of the payment applied toward principal and less toward interest. Amortization is also a way to spread cost incurred up front over the life of a loan.

Closing Costs- Closing costs are the final expenses that a borrower pays at the time a loan transaction is completed. These may include origination fee, points, prepaid homeowner's insurance, appraisal fee, underwriting fee, processing fee, tax service fee, recording fee, title search and insurance, flood certificate fee, credit report fee, recording fee, tax adjustments, agent commissions, and private mortgage insurance. Closing costs generally range from 3% to 6% of the loan amount.

Combined loan-to-value ratio(CLTV)- To calculate CLTV, divide the combined mortgage balance of all mortgages by the fair market value of the home. Example: A home equity line of $50,000 added to your current mortgage of $150,000 gives a combined balance of $200,000. $200,000 divided by the appraised fair market value of $400,000 gives you a CLTV of 50%.

Discount Points- A discount point is equal to 1% of the loan amount. Lenders consider discount points as interest you pay in advance. As a result, the more points you pay at closing, the lower your interest rate. You may be able to deduct the mortgage points in the year you close the loan for tax purposes.

Equity- The difference between market value and the amount still owed. Your equity will increase as you repay your loan. It will also increase if your property is re-appraised at a higher value.

EscrowAccount - Escrow funds are collected with the mortgage payment and deposited into a separate escrow account. The current tax, insurance, and mortgage insurance bills are paid from the escrow account as they become due.

Home Equity Line of Credit (HELOC)- A HELOC is a form of revolving credit. You can borrow an amount up to but not over a pre-approved credit limit. It is secured by the equity in your home. Payments are flexible and may consist of interest-only payments.