Glossary of Common Financial Terms

• Amortization: Repayment of your loan amount through regular payments of both principal and interest, calculated to pay off the loan after a fixed period of time.
• Annual percentage rate (APR): Charges imposed on the borrower to obtain a mortgage, expressed on an annualized basis as an interest rate. It includes the interest rate, loan fees and points.
• Closing:The time at which loan documents and funds are signed and delivered to finalize the funding of a loan. Sometimes called a settlement.
• Closing costs: Expenses incurred to finance a home loan and/or transfer ownership of real estate.
• Cosigner: Person who agrees to make loan payments, if you cannot fulfill your financial commitment.
• Down payment: Cash paid by the home buyer towards the partial payment of a home's sales price.
• Fannie Mae Federal National Mortgage Association: A government-sponsored private corporation that buys home loans from lenders and sells them to investors.
• FHA Federal Housing Administration: An agency within the Department of Housing and Urban Development that provides mortgage insurance for home loans and sets standards for construction and underwriting.
• Negative amortization: Increase in the unpaid loan balance created when monthly payments do not cover both principal and interest and unpaid interest is added to the principal balance.
• Points: Up front fee lenders charge to reduce an interest rate. Each point typically equals 1 percentage point of the total amount of the loan.
• Prepayment penalty: Fee borrowers pay if they pay off a loan during the early years of its term.
• Principal: The original amount of money borrowed not including interest owed.