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Common Mortgage Terms

Appraisal: a written report which determines the property's estimated value based on an analysis of sales of similar homes.

Closing Costs: total fees paid in conjunction with the financing or refinancing of a home for items such as attorney fees, written appraisal fee, credit report, recording fee, etc.

Commitment Letter: a written loan approval that sets forth the terms and conditions under which the loan is made. The body of the letter specifies your loan amount, loan structure, interest rate, and any conditions that must be met prior to closing.

Credit report: a report containing detailed information on a person's credit history, including: credit accounts, loans, bankruptcies, late payments, and recent inquiries. It is used to determine a person's creditworthiness.

Equity: a homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount owed on any mortgage loans outstanding.

Escrow Account: an account which sets aside money for payment of items such as property taxes and homeowner's insurance. The lender uses funds in the escrow account to pay these items on your behalf.

Good Faith Estimate: an estimate of the fees, prepaid items, escrow deposit and down payment due at the closing of a loan.

Homeowner's Insurance: insurance covering your home and its contents in the event of a disaster such as: fire, theft, tornado, etc. Homeowners' insurance is required by law for homes with mortgage loans.

HUD Settlement Statement: a document providing an itemized listing of the funds paid at closing. Items on the statement include: real estate commissions, and initial escrow amounts. This statement defines the seller's net proceeds and the buyer's net payment due at closing.

Origination Fee: a fee charged by the lender for making a loan, represented as a percentage of the total loan. One point equals one percent of the loan amount.

PITI: Monthly payment for Principal, Interest, Taxes, and Insurance.

PMI: Private Mortgage Insurance. Covers losses a lender may incur in the event a mortgage loan becomes default. Typically homes financed with less than 20% down payment may require PMI.

Rate Lock: an obligation issued by a lender to a borrower that guarantees a specified interest rate for a specific period of time.

Rate Cap: a limit on the amount a loan may increase at the time of a rate adjustment..

Refinance: paying off one loan with the proceeds from a new loan at the same property, typically done for a lower rate, different terms, or cash equity from the home.

Second mortgage: a loan secured by property which takes second position to the first mortgage.

Title: a legal document evidencing ownership of a property and liens against the property.

Title Company: a company that specializes in examining and insuring the title to real estate.

Title Insurance: insurance protecting the lender and buyer against losses arising from disputes over ownership of a property.

Treasury index: the average rate for Treasury securities of a given maturity used to determine interest rate changes for certain adjustable rate mortgages published weekly in The Wall Street Journal.

Truth-in-Lending: a federal law requiring lenders to fully disclose, in writing, the terms and conditions of a note and mortgage, including the annual percentage rate (APR) and other charges.